UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number 1-1401
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0970240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 8699
2301 Market Street,
Philadelphia, PA (215) 841-4000 19101
(Address of principal (Registrant's telephone number, (Zip Code)
executive offices) including area code)
Securities registered pursuant to Section 12(b) of the Act:
PECO Energy Company (Securities below are registered on the New York and
Philadelphia Stock Exchanges)
First and Refunding Mortgage Bonds:
6 1/8% Series due 1997 5 5/8% Series due 2001 7 1/8% Series due 2023
5 3/8% Series due 1998 6 1/2% Series due 2003 7 3/4% Series 2 due 2023
7 1/2% Series due 1999 6 3/8% Series due 2005 7 1/4% Series due 2024
Cumulative Preferred Stock - without par value:
$7.96 Series $4.40 Series $3.80 Series
$4.68 Series $4.30 Series
Common Stock - without par value
PECO Energy Capital, L.P. (a partnership of which a wholly owned subsidiary of
the Company is the general partner) Cumulative Monthly Income Preferred
Securities, Series A - without par value (Registered on the New York Stock
Exchange)
Securities registered pursuant to Section 12(g) of the Act:
PECO Energy Company
Cumulative Preferred Stock - without par value:
$7.48 Series $6.12 Series
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's common stock (only voting
stock) held by non-affiliates of the registrant was $5,925,585,451 at January
31, 1995.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Common Stock - without par value: 221,608,984 shares outstanding at January
31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE (In Part)
Annual Report of PECO Energy Company to Shareholders for the year 1994
is incorporated in part in Parts I, II and IV hereof, as specified herein.
Proxy Statement of PECO Energy Company in connection with its 1995
Annual Meeting of Shareholders is incorporated in part
in Part III hereof, as specified herein.
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TABLE OF CONTENTS
<TABLE>
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Page No.
<S> <C>
PART I
ITEM 1. BUSINESS..........................................................................................1
The Company.......................................................................................1
Electric Operations...............................................................................1
General......................................................................................1
Limerick Generating Station..................................................................4
Peach Bottom Atomic Power Station............................................................6
Salem Generating Station.....................................................................7
Fuel .............................................................................................8
Nuclear......................................................................................9
Coal........................................................................................10
Oil.........................................................................................11
Natural Gas.................................................................................11
Gas Operations...................................................................................11
Segment Information..............................................................................12
Rate Matters.....................................................................................12
Construction.....................................................................................14
Capital Requirements and Financing Activities....................................................15
Employee Matters.................................................................................17
Environmental Regulations........................................................................18
Water.......................................................................................18
Air.........................................................................................19
Solid and Hazardous Waste...................................................................20
Costs.......................................................................................23
Competition......................................................................................23
Executive Officers of the Registrant.............................................................25
ITEM 2. PROPERTIES.......................................................................................28
ITEM 3. LEGAL PROCEEDINGS................................................................................30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................31
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................................................................31
ITEM 6. SELECTED FINANCIAL DATA..........................................................................31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................................................31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................................32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................................................32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............................................32
ITEM 11. EXECUTIVE COMPENSATION...........................................................................32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................................................32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K....................................................................................33
Financial Statements and Financial Statement Schedule............................................33
REPORT OF INDEPENDENT ACCOUNTANTS................................................................34
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS..................................................35
Exhibits.........................................................................................36
Reports on Form 8-K..............................................................................39
SIGNATURES
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<PAGE>1
PART I
ITEM 1. BUSINESS
The Company
PECO Energy Company (Company), incorporated in Pennsylvania in 1929, is an
operating utility which provides electric and gas service to the public in
southeastern Pennsylvania. Two subsidiaries own, and a third subsidiary
operates, the Conowingo Hydroelectric Project (Conowingo Project), and one
distribution subsidiary provides electric service to the public in certain areas
of northeastern Maryland adjacent to the Conowingo Project.
The total area served by the Company and its subsidiaries covers 2,475
square miles. Electric service is supplied in an area of 2,340 square miles with
a population of about 3,700,000, including 1,600,000 in the City of
Philadelphia. Approximately 95% of the electric service area and 63% of retail
kilowatthour (kWh) sales are in the suburbs around Philadelphia and in
northeastern Maryland, and 5% of the service area and 37% of such sales are in
the City of Philadelphia. In 1994, approximately 60% of the Company's electric
output was generated from nuclear sources. The Company estimates for 1995 that
59% of its electric output will be generated from nuclear sources (see "Fuel").
Natural gas service is supplied in a 1,475-square-mile area of southeastern
Pennsylvania adjacent to Philadelphia with a population of 1,900,000. The
Company and its subsidiaries hold franchises to the extent necessary to operate
in the areas served.
The Company is subject to regulation by the Pennsylvania Public Utility
Commission (PUC) as to rates, issuances of securities and certain other aspects
of the Company's operations and by the Federal Energy Regulatory Commission
(FERC) as to wholesale and interstate electric rates and as to licensing
jurisdiction over the Company's Muddy Run Pumped Storage Project. Specific
operations of the Company are also subject to the jurisdiction of various other
federal, state, regional and local agencies, including the United States Nuclear
Regulatory Commission (NRC), the United States Environmental Protection Agency
(EPA), the United States Department of Energy (DOE), the Delaware River Basin
Commission and the Pennsylvania Department of Environmental Resources (PDER).
The Company's utility subsidiaries are subject to similar regulation, including
the licensing jurisdiction of the FERC over the Conowingo Project. Due to its
ownership of subsidiary-company stock, the Company is a holding company as
defined by the Public Utility Holding Company Act of 1935 (1935 Act); however,
it is predominantly an operating company and, by filing an exemption statement
annually, is exempt from all provisions of the 1935 Act, except Section 9(a)(2)
relating to the acquisition of securities of a public utility company.
Electric Operations
General
During 1994, 89.7% of the Company's operating revenues and 94.0% of its
operating income were from electric operations. Electric sales and operating
revenues for 1994 by classes of customers are set forth below:
<TABLE>
<CAPTION>
Operating
Sales Revenues
(millions of kWh) (millions of $)
<S> <C> <C>
Residential................................................... 10,817 $1,369.6
Small commercial and industrial............................... 6,108 706.8
Large commercial and industrial............................... 15,847 1,142.9
Other......................................................... 791 136.0
--- -----
Service territory......................................... 33,563 3,355.3
Interchange sales............................................. 768 23.0
Sales to other utilities...................................... 10,039 246.5
------ -----
Total..................................................... 44,370 $3,624.8
====== ========
</TABLE>
<PAGE>2
In 1994, 97.8% of the Company's service territory operating revenues were
from Company sales in Pennsylvania and 2.2% were from sales by the Company's
wholly owned subsidiary Conowingo Power Company (COPCO) in Maryland. On May 24,
1994, the Company entered into a stock purchase agreement to sell COPCO to
Delmarva Power & Light Company (Delmarva). Under the terms of the stock purchase
agreement, Delmarva will pay $150 million for COPCO. The sale is subject to
state and federal regulatory approvals. Recognition of the gain on the sale,
which the Company expects to be approximately $40 million after taxes, is
contingent upon the completion of the sale. The COPCO sale does not involve the
Conowingo Project which is owned by other subsidiaries of the Company.
Due to rerates and the results of the Company's last electric base rate
case, the Company currently has 989 megawatts (MW) of excess installed
generating capacity, which is available for off-system sales, and expects to
have 1,201 MW of excess installed generating capacity by 1997. For 1994, sales
to other utilities consisted of negotiated agreements to sell energy associated
with up to 989 MW of near-term excess capacity. See "Rate Matters." These
agreements are primarily for ongoing, short-duration purchases of energy. The
Company expects to sell approximately $125 million of energy and/or capacity
through such agreements in 1995. The Company also expects to purchase power from
other companies in 1995 for its own use and for resale depending upon the
business opportunity.
In May 1994, the Company entered into a ten-year contract to sell capacity
and energy to Delmarva as part of the Company's agreement to sell COPCO to
Delmarva. Revenue received under this contract is expected to offset the revenue
lost as a result of the sale of COPCO. This contract is subject to state and
federal regulatory approvals and the sale of COPCO to Delmarva.
In 1994, the Company also finalized an agreement to sell 140 MW of energy
and capacity to Baltimore Gas and Electric Company (BG&E) for a 25-year term
beginning in 1997, subject to state and federal regulatory approvals. The sale
is expected to generate approximately $45 million in revenue annually. On
November 17, 1994, the Company submitted the BG&E agreement to the FERC. On
December 13, 1994, Duquesne Power & Light Company (Duquesne) filed with the FERC
a motion to intervene and protest in the FERC proceeding. The proceeding awaits
FERC action.
The net installed electric generating capacity (summer rating) of the
Company and its subsidiaries at December 31, 1994 was as follows:
<TABLE>
<CAPTION>
Type of Capacity Megawatts % of Total
<S> <C> <C>
Nuclear........................................................... 3,938(1) 44.0%
Mine-mouth, coal-fired............................................ 709 7.9
Service-area, coal-fired.......................................... 725 8.1
Oil-fired......................................................... 1,176 13.1
Gas-fired......................................................... 201 2.3
Hydro (includes pumped storage)................................... 1,392 15.5
Internal combustion............................................... 815 9.1
--- ---
Total......................................................... 8,956(2)(3) 100.0%
======= == =====
<FN>
---------------
(1) Does not reflect rerates of Limerick Unit No. 2 or Peach Bottom Unit No. 2.
See "Limerick Generating Station" and "Peach Bottom Atomic Power Station"
for additional discussion.
(2) Includes capacity available for sale to other utilities.
(3) See "Fuel" for sources of fuels used in electric generation.
</FN>
</TABLE>
The maximum hourly demand on the Company's system was 7,227 MW which
occurred on July 8, 1994. The Company estimates its generating reserve margin
for 1995 to be 29%. This is based on the most recent annual peak-load forecast
which assumes normal peak weather conditions and the sale to other utilities of
400 MW of capacity.
<PAGE>3
The Company is a member of the Pennsylvania-New Jersey-Maryland
Interconnection Association (PJM), which fully integrates, on the basis of
relative cost of generation, the bulk-power generating and transmission
operations of eleven investor-owned electric utilities serving more than 22
million people in a 50,000-square-mile territory. In addition, PJM companies
coordinate planning and install facilities to obtain the greatest practicable
degree of reliability, compatible economy, and other advantages from the pooling
of their respective electric system loads, transmission facilities and
generating capacity. PJM uses the split-savings method in pricing and accounting
to provide an economic method of energy interchange among its members. Under
this arrangement, PJM energy is exchanged among PJM member utilities at a price
which represents the average of the producer's cost of generating the
electricity dispatched and the buyer's replacement cost, or the cost avoided by
making the purchase.
The maximum PJM demand of 45,992 MW occurred on July 8, 1994 when PJM's
installed capacity (summer rating) was 56,073 MW. The Company's installed
capacity for 1995-98 is expected to be sufficient for the Company to meet its
obligation as a member of PJM to supply its PJM reserve margin share during that
period.
The Company's nuclear energy is generated by Limerick Generating Station
(Limerick) Units No. 1 and No. 2 and Peach Bottom Atomic Power Station (Peach
Bottom) Units No. 2 and No. 3, which are operated by the Company, and by Salem
Generating Station (Salem) Units No. 1 and No. 2, which are operated by Public
Service Electric and Gas Company (PSE&G). The Company owns 100% of Limerick,
42.49% of Peach Bottom and 42.59% of Salem. Limerick Unit No. 1 has a capacity
of 1,055 MW; Limerick Unit No. 2 has a capacity of 1,115 MW; Peach Bottom Unit
No. 2 has a capacity of 1,093 MW, of which the Company is entitled to 464 MW;
Peach Bottom Unit No. 3 has a capacity of 1,035 MW, of which the Company is
entitled to 439 MW; and Salem Units No. 1 and No. 2 have a capacity of 1,106 MW
each, of which the Company is entitled to 471 MW of each unit.
The Price-Anderson Act, as amended (Price-Anderson Act), sets the limit of
liability of approximately $8.9 billion for claims that could arise from an
incident involving any licensed nuclear facility in the nation. The limit is
subject to increase to reflect the effects of inflation and changes in the
number of licensed reactors. All utilities with nuclear generating units,
including the Company, have obtained coverage for these potential claims through
a combination of private insurances of $200 million and mandatory participation
in a financial protection pool. Under the Price-Anderson Act, all nuclear
reactor licensees can be assessed up to $76 million per reactor per incident,
payable at no more than $10 million per reactor per incident per year. This
assessment is subject to inflation, state premium taxes and an additional
surcharge of 5% if the total amount of claims and legal costs exceeds the basic
assessment. If the damages from an incident at a licensed nuclear facility
exceed $8.9 billion, the President of the United States is to submit to Congress
a plan for providing additional compensation to the injured parties. Congress
could impose further revenue-raising measures on the nuclear industry to pay
claims. The Price-Anderson Act and the extensive regulation of nuclear safety by
the NRC do not preempt claims under state law for personal, property or punitive
damages related to radiation hazards.
Although the NRC requires the maintenance of property insurance on nuclear
power plants in the amount of $1.06 billion or the amount available from private
sources, whichever is less, the Company maintains coverage in the amount of its
$2.75 billion proportionate share for each station. The Company's insurance
policies provide coverage for decontamination liability expense, premature
decommissioning, and loss or damage to its nuclear facilities. These policies
require that insurance proceeds first be applied to assure that, following an
accident, the facility is in a safe and stable condition and can be maintained
in such condition. Within 30 days of stabilizing the reactor, the licensee must
submit a report to the NRC which provides a clean-up plan including the
identification of all clean-up operations necessary to decontaminate the reactor
to permit either the resumption of operations or decommissioning of the
facility. Under the Company's insurance policies, proceeds not already expended
to place the reactor in a stable condition must be used to decontaminate the
facility. If the decision is made to decommission the facility, a portion of the
insurance proceeds will be allocated to a fund which the Company is required by
the NRC to maintain to provide funds for decommissioning the facility. These
proceeds would be paid to the fund to make up any difference between the amount
of money in the fund at the time of the early decommissioning and the amount
that would have been in the fund if contributions had been made over the normal
life of the facility. The Company is unable to predict what effect these
requirements may have on the timing of the availability of insurance proceeds to
the Company for the Company's bondholders and the amount
<PAGE>4
of such proceeds which would be available. Under the terms of the various
insurance agreements, the Company could be assessed up to $44 million for losses
incurred at any plant insured by the insurance companies. The Company is
self-insured to the extent that any losses may exceed the amount of insurance
maintained. Any such losses, if not recovered through the ratemaking process,
could have a material adverse effect on the Company's financial condition or
results of operations.
The Company is a member of an industry mutual insurance company which
provides replacement power cost insurance in the event of a major accidental
outage at a nuclear station. The policy contains a 21-week waiting period before
recovery of costs can commence. The premium for this coverage is subject to an
assessment for adverse loss experience. The Company's maximum share of any
assessment is $14 million per year.
NRC regulations require that licensees of nuclear generating facilities
must demonstrate that funds will be available in certain minimum amounts,
established by a formula provided in the regulations, at the end of the life of
the facility to decommission the facility. The PUC, based on estimates of
decommissioning costs for each of the nuclear facilities in which the Company
has an ownership interest, permits the Company to collect from its customers and
deposit in segregated accounts amounts which, together with earnings thereon,
will be used to decommission such nuclear facilities. The Company's ownership
portion of decommissioning costs is approximately $643 million, expressed in
1990 dollars. Under current rates, the Company collects approximately $20
million annually from customers for decommissioning the Company's nuclear units.
At December 31, 1994, the Company held $174 million in trust accounts,
representing amounts recovered from customers and realized investment earnings
thereon, to fund future decommissioning costs. The most recent estimate of the
Company's share of the cost to decommission its nuclear units is approximately
$900 million in 1994 dollars. The Company would ultimately seek to recover
through the ratemaking process the increase in the 1990 decommissioning cost
estimate being recovered in base rates, although such recovery is not assured.
For additional information concerning nuclear decommissioning, see note 3 of
Notes to Consolidated Financial Statements included in the Company's Annual
Report to Shareholders for the year 1994.
Limerick Generating Station
Limerick Unit No. 1 achieved a capacity factor of 85% in 1994 and 95% in
1993. Limerick Unit No. 2 achieved a capacity factor of 93% in 1994 and 81% in
1993. Limerick Units No. 1 and No. 2 are each on a 24-month refueling cycle. The
last refueling outages for Units No. 1 and No. 2 were in 1994 and 1995,
respectively.
On November 5, 1993, the NRC issued its periodic Systematic Assessment of
Licensee Performance (SALP) Report for Limerick for the period March 15, 1992 to
September 25, 1993. The Report was issued under the revised SALP process in
which the number of assessment areas has been reduced from seven to four:
Operations, Engineering, Maintenance, and Plant Support. The area of Plant
Support includes radiological controls, security, emergency preparedness, fire
protection, chemistry and housekeeping. Limerick received ratings of "1," the
highest of the three rating categories, in the two functional areas of
Operations and Engineering. The areas of Maintenance and Plant Support received
ratings of "2." The NRC stated that overall, it observed an excellent level of
performance at Limerick. It noted continued strong performance in the Operations
and Engineering areas and improvement in the Maintenance area. The NRC noted,
however, that in the Maintenance area, personnel errors, a weakness from the
last SALP period, continued throughout the SALP period. Although the NRC
recognized the implementation of initiatives by the Company to improve
maintenance performance, it stated that such initiatives had not been in place
long enough to be judged effective. In the area of Plant Support, the NRC stated
that security, emergency preparedness, fire protection, chemistry and
housekeeping continue to be very effective and contributed to safe plant
performance. The NRC noted, however, performance weaknesses in the radiation
controls area throughout the SALP period. The Company has taken and is taking
actions to address the weaknesses discussed in the SALP Report. The next SALP
Report for Limerick, for the period September 26, 1993 to April 1, 1995, is
expected to be received during the second quarter of 1995.
<PAGE>5
In October 1990, General Electric Company (GE) reported that crack
indications were discovered near the seam welds of the core shroud assembly in a
GE Boiling Water Reactor (BWR) located outside the United States. As a result,
GE issued a letter requesting that the owners of GE BWRs take interim corrective
actions, including a review of fabrication records and visual examinations of
accessible areas of the core shroud seam welds. Peach Bottom Unit No. 3 was
examined in October 1993 during its last refueling outage and crack indications
were identified at two locations. On November 3, 1993, the Company presented its
findings to the NRC and provided justification for continued operation of Unit
No. 3 for another two-year cycle with the crack indications. Peach Bottom Unit
No. 2 was examined in October 1994 during its last refueling outage and the
inspection revealed a minimal number of flaws. In a letter dated November 7,
1994, the Company submitted its findings to the NRC and provided justification
for continued operation of Unit No. 2. Initial examinations for Limerick Units
No. 1 and No. 2 have been scheduled for the refueling outages planned for
January 1996 and January 1999, respectively, in accordance with industry
experience and guidance. The Company is participating in a GE BWR Owners Group
to develop long-term corrective actions.
On July 24, 1992, the NRC issued an information notice alerting utilities
owning BWRs to potential inaccuracies in water-level instrumentation during and
after rapid depressurization events. On May 28, 1993, the NRC issued a bulletin
requesting utilities owning BWRs to, among other things, install certain
hardware modifications at the next cold shutdown of the BWR after July 30, 1993
to ensure accurate functioning of the water-level instrumentation. These
hardware modifications were made on Peach Bottom Unit No. 2 in August 1993,
Peach Bottom Unit No. 3 in November 1993, Limerick Unit No. 1 in September 1993
and Limerick Unit No. 2 in February 1995.
The NRC has raised concerns that the Thermo-Lag 330 fire barrier systems
used to protect cables and equipment may not provide the necessary level of fire
protection and requested licensees to describe short- and long-term measures
being taken to address this concern. The Company has informed the NRC that it
has taken short-term corrective actions to address the inadequacies of the
Thermo-Lag barriers installed at Limerick and Peach Bottom and is participating
in an industry-coordinated program to provide long-term corrective solutions. By
letter dated December 21, 1992, the NRC stated that the Company's interim
actions were acceptable. By letter dated December 22, 1993, the NRC requested
additional information on the Company's long-term measures to address Thermo-Lag
fire barrier issues. The Company responded by providing details on its
Thermo-Lag reduction program. By letter dated December 20, 1994, the NRC
requested additional information. A response to the third letter will be
provided in March 1995. The Company will complete its engineering re-analysis in
1995 for both Peach Bottom and Limerick. This re-analysis will determine the
extent of modifications that will be performed over the next several years at
both plants in order to complete the long-term measures to address the concern
over Thermo-Lag use.
By letter dated December 9, 1992, the Company submitted a request to the
NRC to rerate the authorized maximum reactor-core power levels of each Limerick
unit by 5% to 1,115 MW. By letter dated February 16, 1995, the NRC approved the
Company's request. The amendment for the Unit No. 2 facility operating license
was effective upon the date of the NRC approval letter. The amendment of the
Unit No. 1 facility operating license will be issued on December 26, 1995.
Modifications to Unit No. 2 were completed during the Unit's most recent
refueling outage. Modifications to Unit No. 1 are scheduled for the refueling
outage planned for January 1996 .
Water for the operation of Limerick is drawn from the Schuylkill River
adjacent to Limerick and from the Perkiomen Creek, a tributary of the Schuylkill
River. During certain periods of the year, generally the summer months but
possibly for as much as six months or more in some years, the Company would not
be able to operate Limerick without the use of supplemental cooling water due to
existing regulatory water withdrawal constraints applicable to the Schuylkill
River and the Perkiomen Creek. Supplemental cooling water for Limerick is
provided by a supplemental cooling water system which draws water from the
Delaware River at the Point Pleasant Pumping Station, transports it to the
Bradshaw Reservoir (Point Pleasant Project), then to the east and main branches
of the Perkiomen Creek and finally to Limerick. The supplemental cooling water
system also provides water for public use to two Montgomery County water
authorities. The Company has obtained all permits for
<PAGE>6
the construction and operation of the supplemental cooling water system. Certain
of the permits relating to the operation of the system must be renewed
periodically.
Although permits for the construction and operation of the supplemental
cooling water system have been obtained, certain permits had been appealed. All
of the appeals relating to the Point Pleasant Project have been resolved, except
for two appeals pending before the Commonwealth Court of Pennsylvania
(Commonwealth Court). The appeals relate to two orders issued by the
Pennsylvania Environmental Hearing Board which had dismissed two appeals filed
by certain environmental groups concerning National Pollutant Discharge
Elimination System (NPDES) permits issued by the PDER.
Opposition to the Point Pleasant Project from various groups, including
Bucks County and the Neshaminy Water Resources Authority, a municipal authority
created by Bucks County which had contracted to construct the Point Pleasant
Project, resulted in protracted litigation. On February 15, 1995, the Montgomery
County water authorities acquired all of Bucks County's interest in the Point
Pleasant Project, including an assignment of the contract pursuant to which
supplemental cooling water is supplied to Limerick, resolving the litigation.
The Company had also entered into an agreement with a municipality to
secure a backup source of water for the interim operation of Limerick should
water from the supplemental cooling water system not be available; however, this
backup source is capable of providing only enough cooling water to operate both
Limerick units simultaneously at 70% of rated capacity for short periods of
time. Although backup sources of water have not been used recently, the Company
is negotiating with the municipality to replace the agreement which expired on
December 31, 1994.
Peach Bottom Atomic Power Station
Peach Bottom Unit No. 2 achieved a capacity factor of 81% in 1994 and 84%
in 1993. Peach Bottom Unit No. 3 achieved a capacity factor of 98% in 1994 and
70% in 1993. Peach Bottom Units No. 2 and No. 3 are each on a 24-month refueling
cycle. The last refueling outages for Units No. 2 and No. 3 were in 1994 and
1993, respectively.
By letter dated November 21, 1994, the NRC imposed a civil penalty of
$87,500 on the Company. The NRC found that, on August 3, 1994, an emergency
service water valve at Peach Bottom was left closed and unattended for
approximately 50 minutes during valve testing, which could have impacted the
ability of safety-related equipment to receive the proper cooling flow in an
emergency. The NRC has recognized that the Company has subsequently taken
corrective actions to prevent recurrence of the incident. By letter dated
December 21, 1994, the Company paid the penalty.
On June 29, 1994, the NRC issued its periodic SALP Report for Peach Bottom
for the period November 1, 1992 to April 30, 1994. The SALP Report was issued
under the revised SALP process in which the number of assessment areas has been
reduced from seven to four. Peach Bottom received a rating of "1" in the area of
Operations. The areas of Engineering, Maintenance, and Plant Support received
ratings of "2." Overall, the NRC found continued improvement in performance
during the period. The NRC stated that enhancement in problem identification and
resolution, good control of refuelings and outages, and excellent oversight by
plant management of day-to-day activities in a manner that ensured safer
operation of the units contributed to the improvement. Despite the overall
improvement, the NRC noted that some areas require continued management
attention and that management needs to continue to encourage plant personnel at
all levels to identify existing, and sometimes longstanding, problems so that
priorities can be established and effective corrective actions implemented. The
NRC also noted instances of personnel inattention to detail and failure to
follow procedures which warranted additional management attention. The Company
has taken and is taking actions to address the weaknesses discussed in the SALP
Report.
By letter dated March 28, 1994, the NRC approved the Company's request to
amend the operating licenses for Peach Bottom Units No. 2 and No. 3 to extend
the expiration dates to August 2013 and July 2014, respectively, 40 years from
the dates of issuance. The previous operating licenses would have expired 40
years
<PAGE>7
from the dates of issuance of the construction permits for the Units. The
amended operating license for Unit No. 2 is extended approximately five years,
six months and the amended operating license for Unit No. 3 is extended
approximately six years, five months.
By letter dated October 18, 1994, the NRC approved the Company's request to
rerate the authorized maximum reactor-core power levels of each Peach Bottom
unit by 5% to 1,093 MW. The amendment of the Unit No. 2 facility operating
license was effective upon the date of the NRC approval letter. The amendment of
the Unit No. 3 facility operating license will be effective upon completion of
the implementation of associated hardware changes, which are to be completed
during Unit No. 3's next refueling outage scheduled for the fall of 1995.
In addition to the matters discussed above, see "Limerick Generating
Station" for a discussion of certain matters which affect both Peach Bottom and
Limerick.
Salem Generating Station
Salem Unit No. 1 achieved a capacity factor of 59% in 1994 and 60% in 1993.
Salem Unit No. 2 achieved a capacity factor of 58% in 1994 and 57% in 1993.
Salem Units No. 1 and No. 2 are each on an 18-month refueling cycle. The last
refueling outages for Units No. 1 and No. 2 were in 1993 and 1994, respectively.
The Company has been informed by PSE&G that as a result of the NRC
investigation following the reactor shutdown of Salem Unit No. 1 in April 1994,
PSE&G was fined $500,000 for violations relating to the failure to identify and
correct significant conditions adverse to quality at the facility related to
spurious steam-flow signals and inoperable atmospheric relief valves, both of
which, the NRC concluded, led to unnecessary safety injections during the event;
the failure to identify and correct significant conditions adverse to quality at
the facility related to providing adequate training, guidance and procedures for
the operators to cope with the event; and the failure by supervisors to exercise
appropriate command and control of the operations staff and the reactor during
the event. On November 1, 1994, PSE&G responded to the violations and paid the
fine.
The Company has been informed by PSE&G that on January 3, 1995, the NRC
issued its periodic SALP Report for Salem for the period June 20, 1993 to
November 5, 1994. The SALP Report was issued under the revised SALP process in
which the number of assessment areas has been reduced from seven to four. Salem
received a rating of "3" in the areas of Operations and Maintenance, a rating of
"2" in the area of Engineering, and a rating of "1" in the area of Plant
Support. The NRC noted an overall decline in performance and evidenced
particular concern with plant and operator challenges caused by repetitive
equipment problems and personnel errors. The NRC also noted that although PSE&G
has initiated several comprehensive actions within the past year to improve
plant performance, and some recent incremental gains have been made, these
efforts have yet to noticeably change overall performance at Salem.
The Company has been informed by PSE&G that PSE&G's own assessments, as
well as those by the NRC and the Institute of Nuclear Power Operations, indicate
that additional efforts are required to further improve operating performance,
and PSE&G is committed to taking the necessary actions to address Salem's
performance needs. It is anticipated that the NRC will maintain a close watch on
Salem's performance and corrective actions related to the April reactor
shutdown. No assurance can be given as to what, if any, further or additional
actions may be taken or required by the NRC to improve Salem's performance.
The Company has been informed by PSE&G that PSE&G is taking significant
steps to address performance shortfalls at Salem. In 1993, a comprehensive
performance assessment team identified areas of weakness through an in-depth
investigation of common causes and events. Corrective action plans and
effectiveness measures were then initiated in 1994 and are ongoing, along with
additional measures designed to achieve a change in Salem's performance.
Personnel performance is being addressed through improved supervisory training,
increased monitoring of work activities, improved operational command and
control and the reorganization and increased staffing at Salem. PSE&G has
established a goal of safe, uneventful operation to be achieved through enhanced
self-assessment and corrective action processes, resolution of long-standing
equipment problems, improved
<PAGE>8
independent oversight of plant operations and improved root-cause analysis of
plant problems. In furtherance of these goals, PSE&G has reorganized the
operational structure of its Nuclear Department and recruited a new chief
nuclear officer. In addition, PSE&G's parent company, Public Service Enterprise
Group, Incorporated (Enterprise), has strengthened oversight of nuclear plant
operations by establishing a standing Nuclear Committee of its Board of
Directors.
The Company has been informed by PSE&G that on March 21, 1995, the Boards
of Directors of Enterprise and PSE&G met with NRC representatives to discuss the
need for continued improvements in equipment reliability and staff performance.
PSE&G cannot predict what actions, if any, the NRC may take as a result of this
meeting.
In addition to the matters discussed above, see "Environmental Regulations
- Water."
Fuel
The following table shows the Company's sources of electric output for 1994
and as estimated for 1995:
<TABLE>
<CAPTION>
1994 1995 (Est.)
<S> <C> <C>
Nuclear........................................................... 60.0% 58.8%
Mine-mouth, coal-fired............................................ 9.5 10.1
Service-area, coal-fired.......................................... 7.6 7.9
Oil-fired......................................................... 4.9 4.1
Gas-fired......................................................... 1.9 2.4
Hydro (includes pumped storage)................................... 2.8 2.5
Internal combustion............................................... 0.2 -
Purchased, interchange and nonutility generated................... 13.1 14.2
---- ----
100.0% 100.0%
===== =====
</TABLE>
The following table shows the Company's average fuel cost used to generate
electricity:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nuclear
Cost per million Btu(1)..................... $ 0.79(2) $ 0.64 $ 0.53 $ 0.56 $ 0.53
Coal
Mine-mouth plants
Cost per ton.............................. 36.93 37.26 33.75 32.73 33.30
Cost per million Btu...................... 1.52 1.51 1.36 1.32 1.34
Service-area plants
Cost per ton.............................. 51.67 50.24 45.25 43.38 38.76
Cost per million Btu...................... 2.06 2.00 1.78 1.66 1.51
Oil
Residual
Cost per barrel........................... 21.70 19.42 15.94 15.87 16.22
Cost per million Btu...................... 3.44 3.11 2.53 2.50 2.54
Distillate
Cost per barrel........................... 30.37 29.90 24.96 27.21 22.77
Cost per million Btu...................... 5.20 5.12 4.26 4.15 3.87
Gas
Cost per mcf.............................. - - 3.05 2.86 2.31
Cost per million Btu...................... - - 2.96 2.77 2.25
<FN>
---------------
(1) British thermal unit.
(2) Reflects reclassification of spent-fuel cost for comparative purposes.
</FN>
</TABLE>
<PAGE>9
Nuclear
The cycle of production and utilization of nuclear fuel includes the mining
and milling of uranium ore; the conversion of uranium concentrates to uranium
hexafluoride; the enrichment of the uranium hexafluoride; the fabrication of
fuel assemblies; and the utilization of the nuclear fuel in the generating
station reactor. The Company has contracts for the supply of uranium
concentrates for Limerick and Peach Bottom which extend through 2002. On
February 23, 1995, two companies which supply uranium concentrates to the
Company filed petitions for bankruptcy under Chapter 11 of the Bankruptcy Code.
The two companies supply approximately half of the Company's 1995 and 1996
requirements for uranium concentrates. In addition, one of the companies is
under contract to supply approximately 25% of the Company's uranium concentrate
requirements for the period 1997 to 2002. The Company has made alternative
arrangements with other suppliers to satisfy its short-term requirements for
uranium concentrates. For the longer-term, the Company is evaluating its
requirements and potential supply sources, including the two suppliers which
have filed petitions for bankruptcy. The Company does not anticipate any
difficulties in obtaining its requirements for uranium concentrates. The
Company's contracts for uranium concentrates are allocated to Limerick and Peach
Bottom on an as-needed basis. PSE&G has informed the Company that it presently
has under contract sufficient uranium concentrates to fully meet the current
projected requirements for Salem through 2000 and 60% of the requirements
through 2002. PSE&G has informed the Company that it does not anticipate any
difficulties in obtaining its requirements for uranium concentrates. The
following table summarizes the years through which the Company and PSE&G have
contracted for the other segments of the nuclear fuel supply cycle:
<TABLE>
<CAPTION>
Conversion Enrichment Fabrication
<S> <C> <C> <C>
Limerick Unit No. 1......................... 1997 (1) 2001
Limerick Unit No. 2......................... 1997 (1) 2002
Peach Bottom Unit No. 2..................... 1997 (1) 1999
Peach Bottom Unit No. 3..................... 1997 (1) 1998
Salem Unit No. 1............................ 2000 (2) 2004
Salem Unit No. 2............................ 2000 (2) 2005
<FN>
---------------
(1) The Company is committed for enrichment services for Limerick and Peach
Bottom under contract with the United States Enrichment Corporation.
The commitments represent 100% of the enrichment requirements through
1998 and 70% through 1999. The Company does not anticipate any
difficulties in obtaining necessary enrichment services for the
Limerick and Peach Bottom Units.
(2) 100% of enrichment requirements through 1998; approximately 50% through
2002; and approximately 30% through 2004. The Company has been informed
by PSE&G that PSE&G does not anticipate any difficulties in obtaining
necessary enrichment services for the Salem Units.
</FN>
</TABLE>
In March 1993, the Company entered into an agreement with Long Island Power
Authority and other parties, subsequently revised in September 1993, to receive
at no cost slightly irradiated nuclear fuel from Shoreham Nuclear Power Station.
As of June 30, 1994, the Company had accepted all of the nuclear fuel shipments.
The acquisition of the fuel will result in estimated benefits to the Company's
customers of $70 million over the next 15 years due to reduced fuel-purchase
requirements. See note 21 of Notes to Consolidated Financial Statements included
in the Company's Annual Report to Shareholders for the year 1994.
There are no commercial facilities for the reprocessing of spent nuclear
fuel currently in operation in the United States, nor has the NRC licensed any
such facilities. The Company currently stores all spent nuclear fuel from its
nuclear generating facilities in on-site, spent-fuel storage pools. By letter
dated November 29, 1994, the NRC approved the Company's request to install new
high-density, spent-fuel storage racks at Limerick, which will provide for
storage capacity to 2013. The new configuration will be designed to accommodate
rod consolidation. Spent-fuel racks at Peach Bottom have storage capacity until
1998 for Unit No. 2 and 1999 for Unit No. 3. Options for expansion of storage
capacity at Peach Bottom beyond the pertinent dates, including rod
consolidation, are being investigated. The Company has been informed by PSE&G
that the spent-fuel storage capacity at Salem will permit storage of spent fuel
through March 1998 for Salem Unit No. 1 and March 2002
<PAGE>10
for Salem Unit No. 2. PSE&G has developed an integrated strategy to meet the
longer-term spent-fuel storage needs for Salem. PSE&G plans to replace the
existing high-density racks in the spent-fuel storage pools of Salem Units No. 1
and No. 2 with maximum density racks. The reracking project commenced in early
1992 and is expected to extend the storage capability of Salem Units No. 1 and
No. 2 through March 2008 and March 2012, respectively.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the DOE was to begin
accepting spent fuel for permanent off-site storage no later than 1998. The DOE
has stated that there is no legal obligation under the NWPA to begin accepting
spent fuel absent an operational repository or other facility constructed under
the NWPA. The DOE acknowledges, however, that it may have created the
expectation of such a commitment on the part of utilities by issuing certain
regulations and projected waste acceptance schedules. In June 1994, a number of
utilities and state agencies, including the PUC, filed a lawsuit against the DOE
seeking a determination of the DOE's legal obligation to accept fuel by 1998.
The DOE has stated that it will not be able to open a permanent, high-level
nuclear waste repository until 2010, at the earliest. The DOE stated that the
delay was a result of its seeking new data about the suitability of the proposed
repository site at Yucca Mountain, Nevada, opposition to this location for the
repository and the DOE's revision of its civilian nuclear waste program.
Legislation has been introduced in Congress for the construction of a temporary
storage facility which would accept spent nuclear fuel from utilities beginning
in 1998 or soon thereafter. Although progress is being made at Yucca Mountain
and several communities have expressed interest in providing a temporary storage
site, the Company cannot predict when the temporary federal storage facilities
or permanent repository will become available. The DOE is exploring options to
address delays in the currently projected waste acceptance schedules. The
options under consideration by the DOE include offsetting a portion of the
financial burden associated with the costs of continued on-site storage of spent
fuel after 1998 and the issuance by the DOE to utilities of multi-purpose
canisters for on-site storage. Under the NWPA, the DOE is authorized to assess
utilities for the cost of nuclear fuel disposal. The current cost of such
disposal is one mill ($.001) per kWh of net nuclear generation. The 1994 charge
collected by the Company from its customers for spent-fuel disposal was $24
million. The DOE may revise this charge as necessary for full-cost recovery of
nuclear fuel disposal.
The National Energy Policy Act of 1992 (Energy Act) requires, among other
things, that utilities with nuclear reactors pay for the decommissioning and
decontamination of the DOE nuclear fuel enrichment facilities. The total costs
to domestic utilities are estimated to be $150 million per year for 15 years, of
which the Company's share is $5 million per year. The Energy Act provides that
these costs are to be recoverable in the same manner as other fuel costs. The
Company has recorded the liability and a related regulatory asset of $59 million
for such costs at December 31, 1994. The Company is currently recovering these
costs through the Energy Cost Adjustment (ECA).
The Company is currently recovering in rates costs for nuclear
decommissioning and decontamination and spent-fuel storage. The Company believes
that the ultimate costs of decommissioning and decontamination, spent-fuel
disposal and any assessment under the Energy Act will continue to be recoverable
through rates, although such recovery is not assured.
Coal
The Company has a 20.99% ownership interest in Keystone Station (Keystone)
and a 20.72% ownership interest in Conemaugh Station (Conemaugh), coal-fired,
mine-mouth generating stations in western Pennsylvania, operated by Pennsylvania
Electric Company. A majority of Keystone's fuel requirements is supplied by one
coal company under a contract which expires on December 31, 2004. The contract
calls for varying amounts of coal purchases as follows: between 3,000,000 and
3,500,000 tons for each of the years 1995 through 1999; and a total of 6,500,000
tons for the years 2000 through 2004. At December 31, 1994, approximately 63% of
Conemaugh's fuel requirements were secured by a long-term contract and several
short-term contracts.
The Company customarily enters into medium-term contracts for a significant
portion of its coal requirements and makes spot purchases for the balance of
coal required by its Philadelphia-area, coal-fired units at Eddystone
<PAGE>11
Station (Eddystone) and Cromby Station (Cromby). At January 1, 1995, the Company
had contracts with two suppliers for 900,000 tons per year or approximately 64%
of expected annual requirements. Both contracts expire on December 31, 1995.
The coal requirements of each station not covered by existing contracts are
met through additional short-term contracts or spot purchases from local
suppliers.
Oil
The Company customarily enters into yearly purchase orders with its various
oil suppliers for the bulk of its requirements and makes spot purchases for the
balance. At present, the Company's purchase orders are sufficient to meet the
estimated residual fuel oil needs of its oil-fired generating units through June
1995, when current orders expire and new yearly orders begin. Purchase orders
for distillate fuel oil are expected to meet the Company's needs through October
1995, when current orders expire and new yearly orders begin.
Natural Gas
The Company obtains natural gas for electric generation through a
combination of short-term orders and spot purchases made on the open market, as
well as through the Company's own City Gate Sales Tariff. The Company obtains
the limited quantities of natural gas used by the auxiliary boilers and
pollution control equipment at Eddystone through the same means. The Company has
the capability to use either oil or natural gas at Cromby Unit No. 2 and
Eddystone Units No. 3 and No. 4.
Gas Operations
During 1994, 10.3% of the Company's operating revenues and 6.0% of its
operating income were from gas operations. Gas sales and operating revenues for
1994 by classes of customers are set forth below:
<TABLE>
<CAPTION>
Operating
Sales Revenues
(mmcf) (millions of $)
<S> <C> <C>
House heating................................................. 31,974 $235.4
Residential (other than house heating)........................ 1,636 16.0
Commercial and industrial..................................... 21,520 133.1
Other......................................................... 5,079 14.0
----- ----
Total gas sales........................................... 60,209 398.5
Gas transported for customers................................. 29,801 17.3
------ ----
Total gas sales and transported........................... 90,010 $415.8
====== ======
</TABLE>
The Company's natural gas supply is provided by purchases from a number of
suppliers for terms ranging up to five years. These purchases are delivered
under several long-term firm transportation contracts with Texas Eastern
Transmission Corporation (Texas Eastern) and Transcontinental Gas Pipe Line
Corporation (Transcontinental). The Company's aggregate annual entitlement under
these firm transportation contracts is 87.5 million dekatherms. Peak gas is
provided by the Company's liquefied natural gas facility and propane-air plant
(see "ITEM 2. PROPERTIES").
Through service agreements with Texas Eastern, Transcontinental, Equitrans,
Inc. and CNG Transmission Corporation, underground storage capacity of 18.7
million dekatherms is under contract to the Company. Natural gas from
underground storage represents approximately 45% of the Company's 1994-95
heating season supplies.
As a result of the restructuring of the interstate gas pipeline industry by
FERC Order 636, the Company has replaced pipeline bundled supply contracts with
separate contracts for pipeline transportation capacity and for gas supplies to
be transported on the pipeline systems. The interstate pipeline companies
recover virtually all their
<PAGE>12
costs of providing transportation service in the form of fixed "reservation
charges" that do not vary with throughput on the pipeline systems. The FERC also
has authorized pipeline tariff provisions that reduce the pipelines' liability
for failure to meet delivery commitments. These federal regulatory changes have
increased the market and regulatory risks of the Company's gas distribution
operations.
The FERC's restructuring initiative created "transition costs," which
principally consist of "gas supply realignment costs," reflecting contractual
liabilities to natural gas producers caused by pipeline companies' inability to
continue to purchase natural gas for resale under traditional bundled supply
contracts. The FERC authorized pipeline companies to recover these costs from
their distribution customers, such as the Company. The PUC permits the
opportunity for full rate recovery. The Company began recovery of such costs
through a surcharge mechanism applicable to all volumes of gas delivered under
the Company's rate schedules, effective April 1, 1994.
The Company's wholly owned subsidiary Eastern Pennsylvania Exploration
Company is a party to several joint ventures formed to find and produce natural
gas in the Gulf Coast area and the Appalachian region. These joint ventures do
not contribute significantly to the Company's natural gas supply. The Company is
engaged in pursuing the sale of these joint ventures.
Segment Information
Segment information is incorporated herein by reference to note 17 of Notes
to Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the year 1994.
Rate Matters
In 1994, approximately 92% of the Company's electric sales revenue and 100%
of its gas sales revenue were derived pursuant to rates regulated by the PUC.
The PUC establishes through regulatory proceedings the base rates which the
Company may charge for electric and gas service in Pennsylvania. In addition,
the PUC regulates various fuel and tax adjustment clauses applicable to
customers' bills. The Company's wholesale electric rates are regulated by the
FERC. The retail rates of COPCO are regulated by the Maryland Public Service
Commission.
The Company's last electric base rate case, intended primarily to recover
costs associated with Limerick Unit No. 2 and associated common facilities, was
filed in 1989. As part of the base rate case, the Company voluntarily excluded
400 MW of capacity from base rates. As part of the order dated April 19, 1990,
the PUC concluded that the Company had an additional 399 MW of near-term excess
capacity for which the Company was denied a return on common equity. For
information concerning the Company's present arrangements for off-system sales,
see "Electric Operations - General."
On April 5, 1991, the PUC approved the settlement of all appeals arising
from the Limerick Unit No. 2 rate case. The settlement allows the Company to
retain for shareholders any proceeds above the average energy cost for sales of
up to 399 MW of capacity and/or associated energy. Under the settlement, the
Company began on April 1, 1994 to share in the benefits which result from the
operation of both Limerick Unit No. 1 and Unit No. 2 through the retention of
16.5% of the energy savings. Through 1994, the Company's potential benefit from
the sale of up to 399 MW of capacity and/or associated energy and the retained
Limerick energy savings was limited to $106 million per year, with any excess
accruing to customers. Beginning in 1995, in addition to retaining the first
$106 million, the Company shares in any excess above $106 million with the
Company's share of the excess being 10% in 1995, 20% in 1996 and 30% in 1997 and
thereafter.
Under a Joint Petition dated October 3, 1994, the Company has been
permitted to increase electric base rates by $25 million per year, effective
January 1, 1995, to recover increased costs associated with the implementation
of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement
<PAGE>13
Benefits Other Than Pensions." For information concerning SFAS No. 106, see
notes 2, 4 and 6 of Notes to Consolidated Financial Statements included in the
Company's Annual Report to Shareholders for the year 1994. The Joint Petition
also provides that the Company will not file for an increase in retail electric
service rates before April 1, 1999, except under specified circumstances for
certain items such as energy cost adjustments, changes in state taxes, changes
in federal taxes, demand side management surcharges, and increases in nuclear
plant decommissioning expense or funding requirements and spent nuclear fuel
disposal expenses. The retail electric SFAS No. 106 operating costs, including
the annual amortization of the transition obligation (over 18 years) deferred in
1993 and 1994, are included in the new rates. Subsequent to January 1, 1995, and
prior to the Company's next electric base rate case, no portion of retail
electric SFAS No. 106 operating costs in excess of the amount allowed to be
recovered under the Joint Petition will be deferred for future rate recovery.
Also, beginning January 1, 1995, the Company is required to deposit in trust
accounts funds equivalent to all of its retail electric SFAS No. 106 costs.
These costs include amounts charged to operating expense and capitalized on and
after January 1, 1995.
In accordance with the Joint Petition, any of the parties to the Joint
Petition may elect to void the settlement in the event current rate recovery of
SFAS No. 106 expense is ultimately disallowed through the Office of Consumer
Advocate's appeal to the Supreme Court of Pennsylvania of cases involving other
Pennsylvania utilities. In such event, the Company would refund to customers,
with interest, the increased base rate amounts collected.
On December 15, 1994, the PUC approved the Company's petition for an
accounting order associated with gas utility operations permitting recognition
of $2.8 million of SFAS No. 106 costs annually and recognition of $1.5 million
of environmental costs annually for the remediation of sites of former
manufactured gas plant facilities using a cost-of-removal methodology, in
exchange for a reduction in depreciation rates to reflect the results of a
current life study. The Company is required to deposit in trust accounts funds
equivalent to its retail gas SFAS No. 106 costs beginning January 1, 1995. This
settlement does not result in any increase in rates to customers.
In accordance with a Declaratory Order of the PUC, the Company deferred
approximately $91 million of operating and maintenance expenses, depreciation
and accrued carrying charges on its capital investment in Limerick Unit No. 2
and 50% of Limerick common facilities during the period from January 8, 1990,
the commercial operation date of Limerick Unit No. 2, until April 20, 1990, the
effective date of the Limerick Unit No. 2 rate order. Recovery of such costs
deferred pursuant to the Declaratory Order will be addressed by the PUC in a
subsequent electric base rate case, although such recovery is not assured.
Disallowance by the PUC of all or part of these costs deferred pending
regulatory approval would result in an immediate charge to expense.
The Company and COPCO recover fuel and gas costs through base rates and
various automatic adjustment clauses. The Company's ECA, applicable to retail
electric service, is adjusted annually. Pursuant to a PUC proceeding applicable
to all Pennsylvania gas utilities, beginning in 1995, purchased gas cost rates
will be adjusted quarterly in lieu of the current requirements for annual
filings. Regulatory audits of the operation of the adjustment clauses are
conducted to determine if refunds to or recoupments from customers are necessary
as a result of over- or under-collections of fuel costs. In addition, the PUC
may investigate outages of electric generating units which exceed 120 days to
determine whether to deny the recovery of replacement power costs.
The Company's ECA provides for recovery of 100% of the difference between
the Company's costs of fuel, energy interchange and purchased power and the
costs billed to customers in base rates. On February 28, 1995, the Company filed
its new ECA to become effective April 1, 1995. The ECA filing proposes a change
from a credit value of 5.627 mills per kWh to a credit value of 5.086 mills per
kWh, which represents an increase in annual revenue of approximately $18
million. The approval of the ECA is pending before the PUC. The ECA also
incorporates a nuclear performance standard which allows for financial bonuses
or penalties depending on whether the Company's system nuclear capacity factor
exceeds or falls below a specified range. If the capacity factor is within the
range of 60% to 70%, there is no bonus or penalty. If the capacity factor
exceeds 70%, then progressive bonuses are allowed. If the capacity factor falls
below 60%, then progressive penalties are imposed.
<PAGE>14
The bonuses or penalties are based upon average system replacement energy costs.
For the year ended December 31, 1994, the Company's system nuclear capacity
factor was 82%, which entitled the Company to a bonus of $14 million.
On May 31, 1994, the Company filed Purchased Gas Cost (PGC) No. 11 rates
for the period December 1, 1994 through November 30, 1995, which reflect a $0.42
per thousand cubic feet (mcf) increase in natural gas sales rates. On November
10, 1994, the PUC approved the Joint Stipulation for Partial Settlement setting
a $0.37 per mcf increase, which represents an increase in annual revenue of
$34.7 million. The Company has received final approval from the PUC to implement
a balancing surcharge and penalty charges applicable to transportation gas on
the Company's system. These charges are intended to reduce the magnitude of
transportation imbalances. All revenues from the charges are credited to the
Company's firm sales customers.
The Company is authorized under a general order of the PUC to add a State
Tax Adjustment Surcharge to customers' bills to reflect the cost of increases or
decreases in certain state tax rates not recovered in base rates.
On October 2, 1990, the PUC issued an order initiating an investigation
into Demand-Side Management (DSM) by electric utilities. Generally, DSM programs
involve utilities providing assistance or incentives to customers to encourage
them to conserve energy and reduce peak demand. On December 1, 1993, the PUC
issued an order establishing a special DSM cost-recovery mechanism for a
five-year period. The PUC order would have permitted surcharge recovery of DSM
program costs and allowed utilities to earn an incentive on kWh saved from DSM.
The PUC order also would have permitted utilities to defer "lost revenues," with
interest, for eventual recovery in the next base rate case. On January 9, 1995,
the Commonwealth Court issued a decision in which it upheld the PUC's order
related to surcharge recovery of DSM program costs, but reversed the PUC's
decision to award DSM incentives through a surcharge. The Commonwealth Court
also remanded all issues related to "lost revenue" recovery for further
consideration by the PUC. On March 6, 1995, the Commonwealth Court denied the
Applications for Reargument filed by the PUC and other parties of the incentive
and "lost revenue" portions of the Commonwealth Court's decision.
In addition to the matters discussed above, see "Competition" for a
discussion of the PUC's investigation of electric power competition issues.
Construction
The Company maintains a construction program designed to meet the projected
requirements of its customers and to provide service reliability, including the
timely replacement of existing facilities. The Company's current construction
program includes no new generating facilities. During the five years 1990-94,
gross property additions (excluding capital leases) amounted to $2.3 billion and
retirements amounted to $182 million, resulting in a net increase of
approximately 16% in the Company's utility plant. Investment for new plant and
equipment in 1994 amounted to $557 million. At December 31, 1994, construction
work in progress, excluding nuclear fuel, aggregated $473 million.
<PAGE>15
The following table shows the Company's most recent estimates of capital
expenditures for plant additions and improvements for 1995 and for 1996-98:
<TABLE>
<CAPTION>
(Millions of $)
1995 1996-98
<S> <C> <C>
Electric:
Production........................................................ $186 $420
Nuclear fuel...................................................... 62 190
Transmission and distribution..................................... 96 290
Other electric.................................................... 5 10
- --
Total Electric................................................ 349 910
Gas.................................................................... 52 160
Other.................................................................. 94 280
-- ---
Total............................................................. $495 $1,350
==== ======
</TABLE>
Nuclear fuel requirements exclude the Company's share of the requirements
for Peach Bottom and Salem which are provided by an independent fuel company
under a capital lease. See note 15 of Notes to Consolidated Financial Statements
included in the Company's Annual Report to Shareholders for the year 1994.
Capital Requirements and Financing Activities
The following table shows the Company's most recent estimates of capital
requirements for 1995 and for 1996-98:
<TABLE>
<CAPTION>
(Millions of $)
1995 1996-98
<S> <C> <C>
Construction.................................................. $495 $1,350
Long-term debt maturities and sinking funds................... 201 901
--- ---
Total Capital Requirements........................... $696 $2,251
==== ======
</TABLE>
The Company expects to meet its capital requirements for 1995 and for
1996-98 with internally generated funds. The estimates of capital requirements
do not include any amounts for refundings of higher-dividend preferred stock or
higher-interest debt, which refundings are dependent on future market conditions
and internal cash generation.
<PAGE>16
In 1994, the Company's financing activities consisted of:
<TABLE>
<CAPTION>
(Millions of $)
<S> <C>
Medium-Term Notes (1):
6.05% due 1995.................................................... $12.4
6.42% due 1996.................................................... 12.4
6.96% due 1997.................................................... 10.0
7.00% due 1997.................................................... 2.0
7.41% due 1998.................................................... 12.4
Cumulative Monthly Income Preferred Securities (2):
9.00%............................................................. 221.3
Pollution Control Notes:
Floating Rate due 2029............................................ 82.6
Floating Rate due 2029............................................ 13.3
----
Total........................................................ $366.4
======
<FN>
---------------
(1) Secured by First and Refunding Mortgage Bonds.
(2) Issued through PECO Energy Capital, L.P., of which a wholly owned subsidiary of the Company is the general
partner.
</FN>
</TABLE>
The long-term debt and cumulative monthly income preferred securities sold
during 1994 replaced debt and preferred stock carrying higher rates of interest
and dividends. Also during 1994, the Company utilized internally generated cash
to redeem $253 million of debt and to redeem $18 million of preferred stock.
Under the Company's mortgage (Mortgage), additional mortgage bonds may not
be issued on the basis of property additions or cash deposits unless earnings
before income taxes and interest during 12 consecutive calendar months of the
preceding 15 calendar months from the month in which the additional mortgage
bonds are issued are at least two times the pro forma annual interest on all
mortgage bonds outstanding and then applied for. For the purpose of this test,
the Company has not included Allowance for Funds Used During Construction which
is included in net income in the Company's consolidated financial statements in
accordance with the prescribed system of accounts. The coverage under the
earnings test of the Mortgage for the 12 months ended December 31, 1994 was 3.48
times. Earnings coverages under the Mortgage for the calendar years 1993 and
1992 were 4.20 and 3.31 times, respectively. At December 31, 1994, the most
restrictive issuance test of the Mortgage related to available property
additions. At December 31, 1994, the Company had at least $1.16 billion of
available property additions against which $699 million of mortgage bonds could
have been issued. In addition, at December 31, 1994, the Company was entitled to
issue approximately $3.5 billion of mortgage bonds without regard to the
earnings and property additions tests against previously retired mortgage bonds.
Under the Company's Amended and Restated Articles of Incorporation
(Articles), the issuance of additional preferred stock requires an affirmative
vote of the holders of two-thirds of all preferred shares outstanding unless
certain tests are met. Under the most restrictive of these tests, additional
preferred stock may not be issued without such a vote unless earnings after
income taxes but before interest on debt during 12 consecutive calendar months
of the preceding 15 calendar months from the month in which the additional
shares of stock are issued are at least 1.5 times the aggregate of the pro forma
annual interest and preferred stock dividend requirements on all indebtedness
and preferred stock. Coverage under this earnings test of the Articles for the
12 months ended December 31, 1994 was 2.05 times. Earnings coverage under the
Articles for the calendar years 1993 and 1992 was 2.47 and 2.00 times,
respectively.
<PAGE>17
The following table sets forth the Company's ratios of earnings to fixed
charges and the ratios of earnings to combined fixed charges and preferred stock
dividends for the periods indicated:
<TABLE>
<CAPTION>
1990(1) 1991 1992 1993 1994(2)
------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..................... 1.31 2.55 2.43 3.15 2.66
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends......................... 1.04 2.14 2.06 2.67 2.32
---------------
<FN>
(1) Reflects one-time charges against income associated with various
disallowances made by the PUC in the electric rate case for Limerick Unit
No. 2 and the Company's 1990 Early Retirement Plan and a one-time after-tax
addition to income associated with the cumulative effect of an accounting
change for unbilled operating revenues.
(2) Reflects a one-time charge against income associated with early retirement
and separation programs. See "Employee Matters."
</FN>
</TABLE>
For purposes of these ratios, (i) earnings consist of income from continuing
operations before income taxes and fixed charges and (ii) fixed charges consist
of all interest deductions and the financing costs associated with capital
leases.
At December 31, 1994, the Company had a total of $692 million outstanding
under unsecured term-loan agreements with banks with maturities ranging from
1995 to 1997. Most of the Company's unsecured debt agreements contain
cross-default provisions to the Company's other debt obligations.
The Company has a $150 million commercial paper program, and at December
31, 1994, there was no commercial paper outstanding. At December 31, 1994, the
Company and its subsidiaries had formal and informal lines of credit with banks
aggregating $351 million against which $11 million of short-term debt was
outstanding. The Company has compensating balance arrangements for $158 million
of these formal and informal lines of credit. During 1994, the Company was
required to maintain a 5% average compensating balance for these credit lines.
Employee Matters
The Company and its subsidiaries had 9,052 employees at December 31, 1994.
In April 1994, the Company's Board of Directors approved a package of
financial incentives permitting eligible employees to participate in either
Voluntary Retirement Incentive Program (VRIP) or Voluntary Separation Incentive
Program (VSIP). All regular, part-time and intermittent employees who would be
50 years of age and would have at least five years of credited service as of
December 31, 1995 were eligible for VRIP. All regular and part-time employees of
the Company, regardless of age or seniority, were eligible for VSIP. Employees
who voluntarily separate from the Company under VSIP receive a lump-sum payment
based on years of service. Of the estimated 2,135 employees eligible for VRIP,
1,474 employees elected to accept early retirement. An additional 1,008
employees elected to separate under VSIP. The retirements and separations are
taking place in stages through December 31, 1995. At January 31, 1995, the
Company and its subsidiaries had 7,535 employees.
As a result of VRIP and VSIP, the Company incurred a one-time pre-tax
charge of $254 million ($145 million net of taxes) in the third quarter of 1994.
The Company expects VRIP and VSIP to provide savings in wages and benefits to
the Company of approximately $100 million annually.
On March 7, 1995, a New Jersey local of the International Brotherhood of
Electrical Workers (IBEW) filed two petitions with the National Labor Relations
Board (NLRB) to hold a certification election to determine whether a group of
production and maintenance employees from Eddystone and Cromby want the IBEW to
<PAGE>18
represent them. The petitions seek to establish separate bargaining units for
225 employees from Eddystone and 70 employees from Cromby. The petitions cover
craft and technical employees, including operators, but exclude office clerical,
professional, supervisory and management employees.
On March 22, 1995, the Utility Workers Union of America, AFL-CIO (UWUA)
filed a petition with the NLRB to hold a certification election to determine
whether certain production and maintenance employees from Peach Bottom and
Limerick want the UWUA to represent them. The petition seeks a bargaining unit
of approximately 600 employees composed of all maintenance employees and all
control room and alternate control room operators and auxiliary operators,
instrumental and control technicians, health physics technicians, chemistry
technicians, material handlers and technicians, and rad waste technicians. The
petition excludes guards, clerical and supervisory employees. This petition will
be consolidated with those filed by the IBEW for hearings before the NLRB. The
Company has taken the position that the only appropriate bargaining unit is the
same system-wide unit that was certified only two years ago, and that it will
oppose any attempt by outside interests to organize its employees.
On June 10 and 11, 1993, the NLRB conducted a certification election in
which certain non-management employees had the opportunity to choose to be
represented by the IBEW, the Independent Group Association (IGA) or to continue
not to be represented by a union. On June 12, 1993, the NLRB announced that the
Company employees voted to continue not to be represented by a union. Of the
6,400 employees eligible to vote, 95.5% cast ballots. Employees cast 3,530 votes
for "no union"; 1,260 votes for the IBEW; and 719 votes for the IGA.
Environmental Regulations
Environmental controls at the federal, state, regional and local levels
have a substantial impact on the Company's operations due to the cost of
installation and operation of equipment required for compliance with such
controls. In addition to the matters discussed below, see "Electric Operations -
General" and "Electric Operations - Limerick Generating Station."
An environmental issue with respect to construction and operation of
electric transmission and distribution lines and other facilities is whether
exposure to electric and magnetic fields (EMF) causes adverse human health
effects. A large number of scientific studies have examined this question and
certain studies have indicated an association between exposure to EMF and
adverse health effects, including certain types of cancer. However, the
scientific community still has not reached a consensus on the issue. Additional
research intended to provide a better understanding of EMF is continuing. On
January 11, 1995, researchers at the University of North Carolina released the
results of an EMF study in which the Company had participated. The researchers
stated that this study does not resolve the fundamental question of whether
magnetic fields cause cancer. The Company supports further research in this area
and is funding, monitoring and participating in such studies. The Company cannot
predict at this time what effect, if any, this matter will have on future
operations.
Public concerns about the possible health risks of exposure to EMF have,
and are expected in the future to, adversely affect the costs of, and time
required to, site new distribution and transmission facilities and upgrade
existing facilities.
Water
The Company has received NPDES permits as required under federal and state
laws for the discharge of effluents from its generating stations. These permits
must be renewed periodically and, as necessary, the Company has filed
applications for renewal.
The Company has been informed by PSE&G that over the last 15 years, PSE&G
has submitted to the EPA and the New Jersey Department of Environmental
Protection (now the New Jersey Department of Environmental Protection and Energy
(NJDEPE)) its demonstrations which concluded that structural modifications
including
<PAGE>19
cooling towers are not required at Salem to achieve satisfactory environmental
effects. In 1990, the NJDEPE issued a draft New Jersey discharge to surface
water permit to Salem which required closed-cycle cooling. In response to the
1990 draft permit, PSE&G submitted extensive written comments to the NJDEPE
regarding the ecological effects of station operations demonstrating that Salem
was not having and would not have an adverse environmental impact and that
closed-cycle cooling was an inappropriate solution.
To resolve the NJDEPE's concerns, PSE&G also developed and submitted a
supplement to the permit renewal application setting forth an alternative
approach that would protect aquatic life in the Delaware Estuary and provide
other ecological benefits. PSE&G proposed intake screen modifications to reduce
fish losses, a study of sound deterrent systems to divert fish from the intake
and a limit on intake flow. In addition, PSE&G proposed conservation measures,
including the restoration of up to 10,000 acres of degraded wetlands and the
installation of fish ladders to allow fish to reach upstream spawning areas.
Finally, PSE&G proposed a comprehensive biological monitoring program to expand
existing knowledge of the Delaware Estuary and to monitor station impacts.
In June 1993, the NJDEPE issued to Salem a revised draft permit which
reconsidered the requirement for closed-cycle cooling and adopted alternative
measures proposed by PSE&G with certain modifications. A final five-year permit,
with essentially the same provisions as the revised draft permit, was issued on
July 20, 1994 with an effective date of September 1, 1994. The EPA, which has
authority to review the final permit issued by the NJDEPE, completed its review
and has not raised any objections.
Certain environmental groups and other entities, including the State of
Delaware, have filed requests for hearings with the NJDEPE challenging the final
permit. The NJDEPE granted the hearing requests on certain of the issues and
PSE&G has been named as a respondent along with the NJDEPE in these matters
which are pending in the Office of Administrative Law of the State of New
Jersey.
PSE&G is implementing the final permit. Additional permits from various
agencies are required to be obtained. No assurances can be given as to receipt
of any such additional permits. The estimated capital cost of compliance with
the final permit is approximately $100 million, of which the Company's share is
42.59%.
Air
Air quality regulations promulgated by the PDER and the City of
Philadelphia in accordance with the federal Clean Air Act impose restrictions on
emission of particulates, sulfur dioxide (SO2) and other pollutants and require
permits for operation of emission sources. Such permits have been obtained by
the Company and must be renewed periodically. Under the Clean Air Act Amendments
of 1990 (Amendments) new permits will have to be obtained.
The Amendments establish a comprehensive and complex national program to
substantially reduce air pollution over the next decades. The Amendments include
a two-phase program to reduce acid rain effects by significantly reducing
emissions of SO2 and nitrogen oxides (NOx) from electric power plants. A
flue-gas desulfurization system (scrubbers) has been installed at Conemaugh Unit
No. 1 to reduce SO2 emissions to meet the 1995 Phase I requirements.
Installation of scrubbers for Unit No. 2 is expected to be completed in late
1995. The Company's share of the capital costs to construct the scrubbers and
make other related improvements at Conemaugh is approximately $78 million.
Keystone is not covered by the Phase I SO2 and NOx limits of the Amendments.
Capital expenditures in amounts similar to those required for Conemaugh,
however, may also be necessary for Keystone to meet, by January 1, 2000, the
Phase II SO2 and NOx limits.
The Company's service-area, coal-fired generating units at Eddystone and
Cromby are equipped with scrubbers and their emissions meet the SO2 limits of
both Phase I and Phase II of the Amendments. The Company, however, will be
required to comply with the NOx Reasonably Available Control Technology (RACT)
limitations of the Amendments by May 31, 1995 for these and other units, all of
which are in an ozone nonattainment area. To comply with the RACT requirements,
the Company is installing low-NOx burners with
<PAGE>20
separated overfired air on its coal-fired units; installing low-NOx burners on
its auxiliary boilers at Eddystone; making modifications at certain of its oil-
and gas-fired steam units; and limiting operation of its internal combustion
units. The Company estimates that compliance with the RACT requirements will
require a capital expenditure of $21 million. If, however, further technological
improvements or reductions in NOx emissions are required, the cost of compliance
could be substantially higher. As a result of its prior investments in scrubbers
for Eddystone and Cromby and its investment in nuclear generating capacity, the
Company believes that compliance with the Amendments will have less impact on
the Company's electric rates than on the rates of other Pennsylvania utilities
which are more dependent on coal-fired generation.
Many other provisions of the Amendments are affecting the Company's
business. The Amendments establish stringent new control measures for areas
which are designated as not meeting national ambient air quality standards;
establish limits on the purchase and operation of motor vehicles and require
increased use of alternative fuels; provide for stringent controls on emissions
of toxic air pollutants and the possible future designation of some utility
emissions as toxic; establish new permit and monitoring requirements for sources
of air emissions; and provide for significantly increased enforcement power, and
civil and criminal penalties.
Solid and Hazardous Waste
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 and the Superfund Amendments and Reauthorization Act of 1986
(collectively CERCLA) authorize the EPA to cause "potentially responsible
parties" (PRPs) to conduct (or for the EPA to conduct at the PRPs' expense)
remedial action at waste disposal sites that pose a hazard to human health or
the environment. Parties contributing hazardous substances to a site or owning
or operating a site typically are viewed as jointly and severally liable for
conducting or paying for remediation and for reimbursing the government for
related costs incurred. PRPs may agree to allocate liability among themselves,
or a court may perform that allocation according to equitable factors deemed
appropriate.
By notice issued in November 1986, the EPA notified over 800 entities,
including the Company, that they may be PRPs under CERCLA with respect to
releases of radioactive and/or toxic substances from the Maxey Flats disposal
site, a low-level radioactive waste disposal site near Moorehead, Kentucky,
where certain of the Company's wastes were deposited. Approximately 90 PRPs,
including the Company, formed a steering committee and entered into an
administrative consent order with the EPA to conduct a remedial investigation
and feasibility study (RI/FS), which was substantially revised based on the EPA
comments. In September 1991, following public review and comments, the EPA
issued a Record of Decision in which it selected a natural stabilization remedy
for the Maxey Flats disposal site. The steering committee has preliminarily
estimated that implementing the EPA proposed remedy at the Maxey Flats site
would cost $60-$70 million in 1993 dollars. A settlement has been reached among
the PRPs, the federal and private PRPs, the Commonwealth of Kentucky and the EPA
concerning their respective roles and responsibilities in conducting remedial
activities at the site. Under the settlement, the private PRPs will perform the
initial remedial work at the site and the Commonwealth of Kentucky will assume
responsibility for long-range maintenance and final remediation of the site. The
Company estimates that it will be responsible for $600,000 of the remediation
costs to be incurred by the private PRPs in implementing the remedial activities
for which the private PRPs have agreed to be responsible.
By notice issued in December 1987, the EPA notified several entities,
including the Company, that they may be PRPs under CERCLA with respect to wastes
resulting from the treatment and disposal of transformers and/or miscellaneous
electrical equipment at a site located in Philadelphia, Pennsylvania (the Metal
Bank of America site), during the period 1970-72. Several of the PRPs, including
the Company, have formed a steering committee to investigate the nature and
extent of possible involvement in this matter. On May 29, 1991, a Consent Order
was issued by the EPA pursuant to which the members of the steering committee
agree to perform the RI/FS as described in the work plan issued with the Consent
Order. The Company's share of the cost of the RI/FS was approximately 30%. On
October 14, 1994, the PRPs submitted to the EPA the RI/FS which identified a
range of possible remedial alternatives for the site from taking no action to
removal of essentially all contaminated material with an estimated cost range of
$2 million to $90 million. Although the Company is unable to predict
<PAGE>21
which remedial alternative will eventually be required by the EPA, preliminary
indications are that the costs to remediate the site could be approximately $25
million and could be higher depending upon the remedial alternative chosen by
the EPA. The Company is unable to predict at this time the Company's share of
such costs.
The EPA has notified the Company that it is a PRP for part of the cleanup
costs at a site (Berks Associates/Douglassville site) where wastes generated by
the Company may have been deposited by others and has requested extensive
information on the characteristics of the material sent to the site and the
processes which generated the material. In August 1991, the EPA filed suit in
the United States District Court for the Eastern District of Pennsylvania
(Eastern District Court) against 36 named PRPs, not including the Company,
seeking a declaration that these PRPs are jointly and severally liable for
cleanup of the Berks Associates/Douglassville site and for costs already
expended by the EPA on the site. Simultaneously, the EPA issued an
Administrative Order against the same named defendants, not including the
Company, which requires the PRPs named in the Administrative Order to commence
cleanup of a portion of the site. It is estimated that the cleanup of this
portion of the site will cost approximately $2 million. Although the Company was
not named as a respondent in the Administrative Order issued by the EPA, it
joined a group of the named respondents and several other PRPs who were not
named as respondents, and contributed money to the group to conduct the cleanup
activities required by the Administrative Order. On September 29, 1992, the
Company and 169 other parties were served with a third-party complaint joining
these parties as additional defendants. Subsequently, an additional 150 parties
were joined as defendants. A group of approximately 100 PRPs with allocated
shares of less than 1%, including the Company, have formed a negotiating
committee to negotiate a settlement offer with the EPA. In December 1994, the
EPA proposed a modified de minimis PRP settlement which would require the
Company to pay approximately $800,000 in exchange for the EPA agreeing not to
sue, take administrative action under CERCLA for recovery of past or future
response costs or seek injunctive relief with respect to the site. The Company
has notified the EPA that it wishes to participate with other eligible PRP's in
the modified offer, subject to resolving certain additional contingencies.
The Company has been notified by groups of PRPs at two sites (the Spectron
site and the Metro Container site) that the Company has been identified as
having sent hazardous substances to these sites. The Company has been requested
by these PRPs to contribute to the costs of certain removal activities
undertaken by the PRPs pursuant to consent orders issued by the EPA. The Company
has contributed to the removal costs at one site. The amount of the Company's
contribution, if any, to the other site has not yet been determined. The EPA has
not yet determined if further cleanup activities will be required at these two
sites.
In April 1990, the Company received a notice from the NJDEPE which alleges
that the Company is potentially liable for certain cleanup costs at the
Gloucester Environmental Management Services, Inc. (GEMS) site located in New
Jersey because wastes generated by the Company are alleged to have been
deposited at the site by a third party. The Company was added as a defendant in
a suit commenced by the NJDEPE several years ago, which now names several
hundred defendants, and which relates to the GEMS site. The Company has joined a
pre-existing group of PRPs which is dealing with the NJDEPE on these matters. In
February 1995, the Company was named as an additional defendant in a private
party class action seeking damages associated with the GEMS site.
On October 16, 1989, the EPA and the NJDEPE commenced a civil action in the
United States District Court for the District of New Jersey against 26
defendants, not including the Company, alleging the right to collect past and
future response costs for cleanup of the Helen Kramer landfill located in New
Jersey. In October 1991, the direct defendants joined the Company and over 100
other parties as third-party defendants. The third-party complaint alleges that
the Company generated materials containing hazardous substances that were
transported to and disposed at the landfill by a third party. The direct and
third-party defendants are presently involved in settlement negotiations
involving an allocation process.
In July 1992, the Company received a notice from a group of PRPs performing
remediation at the Blosenski Landfill Superfund Site that the group considers
the Company to be a PRP. The PRP group requested the Company to join the
existing PRP group or face legal action by the group to compel the Company to
contribute
<PAGE>22
to past and future clean-up costs. The Company investigated its involvement with
this site and has been unable to identify a basis for concluding that the
Company is liable for remediation costs at this site. Consequently, the Company
has notified the PRP group that it does not, at this time, intend to join the
Blosenski PRP group. The Blosenski PRP group served the Company with a subpoena
seeking certain information from the Company concerning its involvement with
this site. The Company responded to some of the requests and has objected to
others.
In November 1992, the Company received a subpoena from the non-government
parties (party participants) in a consolidated action relating to the Bridgeport
Rental and Oil Services (BROS) site requesting information on various haulers.
The party participants have information which they believe connects the Company
to the site. At the invitation of the party participants, the Company is
participating in a "voluntary, informal, non-litigated settlement/mediation
process." In April 1993, the Company received a Request for Information from the
EPA regarding potential use of the BROS site. On May 27, 1993, the Company filed
its response with the EPA. Negotiations are ongoing.
In March 1994, the Company received a notice from the EPA that it may be a
de minimus PRP with respect to hazardous substances deposited by a third party
at a site (Jack's Creek/Sitkin Smelting Facility) located in Mifflin County,
Pennsylvania. The Company has signed an agreement to pay $6,000 to settle this
matter with the EPA. The settlement is contingent upon final approval of the
United States Assistant Attorney General.
On March 3, 1989, the Company received a Notice of Violation from the PDER
for soil contamination at one of the Company's maintenance facilities. The
Company suspects that the contamination was caused by leakage of transformer
dielectric fluid. The PDER required the Company to initiate sampling to
determine the scope of the contamination. The Company conducted sampling and
ground water monitoring and submitted the results to the PDER on November 18,
1991. The Company has identified the presence of oil and polychlorinated
byphenols (PCBs) at the site. On February 19, 1993, the Company submitted to the
PDER a revised remedial clean-up strategy. On March 9, 1993, the PDER accepted
the Company's revised remedial clean-up strategy. The Company is implementing
the remedial clean-up strategy accepted by the PDER, which is expected to cost
approximately $2 million over a period of three to five years.
In addition, an evaluation of all Company sites for potential environmental
clean-up liability is in progress, including approximately 20 sites where
manufactured gas plant activities may have resulted in site contamination. Past
activities at several sites have resulted in actual site contamination. The
Company is presently engaged in performing detailed evaluations at certain of
these sites to define the nature and extent of the contamination, to determine
the necessity of remediation and to identify possible remediation alternatives.
For discussion of cost recovery of remediation of former manufactured gas plant
sites, see "Rate Matters."
The Company has also responded to various governmental requests,
principally those of the EPA pursuant to CERCLA, for information with respect to
the possible deposit of Company waste materials at various disposal, processing
and other sites.
In addition, the Company is in the process of complying with the Resource
Conservation and Recovery Act (RCRA) which governs treatment, storage and
disposal of solid and hazardous wastes.
On June 4, 1993, the Company entered into a Corrective Action Consent Order
(CACO) from the EPA under RCRA. The CACO order requires the Company to
investigate the extent of alleged releases of hazardous wastes and to evaluate
corrective measures, if necessary, for a site located along the Delaware River
in Chester, Pennsylvania, which had previously been leased to Chem Clear, Inc.
Chem Clear operated an industrial waste water pretreatment facility on the site.
In October 1994, the Company entered into an agreement with Clean Harbors, the
successor to Chem Clear, pursuant to which the Company will be responsible for
approximately 25% of the cost incurred under the CACO and Clean Harbors will be
responsible for 75% of the costs. The Company cannot estimate its liability, if
any, for interim or corrective measures because they have not yet been
identified. The Company estimates that its share of the cost to comply with the
CACO will cost $2 million over a period
<PAGE>23
of five years. Until completion of the required investigation, the Company is
unable to predict the nature and cost of any potential corrective action.
Costs
The Company's budget for capital requirements for 1995 and its most recent
estimate of capital requirements for 1996-98 for compliance with environmental
requirements total $60 million. This estimate includes the Company's share of
the costs to comply with the revised NJDEPE permit for Salem, but does not
include any amounts that may be required for its share of scrubbers or other
systems at Keystone to comply with the Amendments. In addition, the Company may
be required to make significant additional expenditures not presently
determinable.
At December 31, 1994, the Company had accrued $24 million for various
investigation and remediation costs that can be reasonably estimated. The
Company cannot currently predict whether it will incur other significant
liabilities for additional remediation costs at sites presently identified or
additional sites which may be identified by the Company, environmental agencies
or others or whether all such costs will be recoverable through rates or from
third parties.
Competition
The Energy Act encourages competition among utilities and nonutility
generators for sales of energy and capacity to wholesale customers by allowing
access to utility transmission facilities. The Energy Act directs the FERC to
set prices for wheeling to allow utilities to recover all legitimate, verifiable
and economic costs of providing wheeling services, including the cost of
expanding their transmission facilities to accommodate required transmission
access. On August 5, 1994, Duquesne filed an application under Section 211 of
the Federal Power Act requesting that the FERC order the Company and the other
PJM member and associate utilities to provide 300 MW of firm transmission
service for a 20-year term. Duquesne has stated that it intends to use the
requested firm transmission service to make firm generation sales to purchasers
within and beyond PJM. The PJM members, including the Company, dispute
Duquesne's claim that it is entitled to the transmission service that it has
requested. The proceeding awaits FERC action.
In May 1994, the PUC instituted an investigation into electric power
competition issues. The PUC invited utilities, independent power producers and
other interested parties to respond to a number of issues related to
competition, including the impact of retail wheeling. In November 1994, the
Company filed its comments with the PUC. The Company responded that access by
retail customers to alternate electricity suppliers (retail access) is not in
the public interest and should not be implemented unless there is a reasonable
expectation that the total benefits created will exceed the total cost of the
changes.
The Company believes that retail access should not be adopted if it
represents a mere shifting of costs from one class of customers to another. The
Company believes that retail access does not currently provide a net benefit.
Regulatory changes permitting retail access may also create "stranded
investment," which is investment by a regulated utility in assets currently
included in rates that are not recoverable if its customers are served by
another energy supplier. Investments by the Company in assets which are not
recoverable from customers may have to be written off, which write-off could
have a material adverse effect on the Company's financial condition and results
of operations. The Company believes other alternatives are available for
enhancing the current regulatory system. The Company expressed its willingness
to work with others to explore potential enhancements, such as performance-based
ratemaking, flexible pricing and the continued development of efficient
bulk-power markets. The PUC is currently expected to release the findings from
its investigation in the spring of 1995. The Company is not able to predict
whether retail access will be implemented and, if implemented, what impact it
would have on the Company's financial condition or results of operations.
The Company believes that retail access will not adversely affect the
Company's ability to retain its larger-volume industrial customers. The Company
has in place rates that allow it to enter into long-term contracts with
<PAGE>24
these larger-volume customers that are based on the particular customer's
next-best competitive alternative. Because the Company is a high-cost producer
due to its capital investment in nuclear facilities, retail access could
adversely affect other segments of its retail business, particularly other large
commercial and industrial customers.
The wholesale electric utility industry, in particular power generation to
serve the needs of large users such as municipal customers and to provide for
off-system sales, has become increasingly competitive. Such competition has
permitted the Company to increase off-system sales but has reduced the Company's
margin for off-system sales. Companies that are able to provide energy at a
lower cost are likely to benefit from this competition. These factors will
continue to challenge the Company to maintain current revenue levels.
The Company has implemented its plan to reorganize the Company's operations
into five strategic business units to better enable it to meet the challenges of
a competitive environment. The Consumer Energy Services Group distributes energy
products and services to the Company's retail customers and consists primarily
of the operating divisions, marketing, sales, engineering and support services.
Bulk Power Enterprises is responsible for marketing and selling energy products
to wholesale customers inside and outside the Company's service territory. The
Power Generation Group is responsible for operating the Company's fossil-fuel
and hydroelectric generating units. The Nuclear Generation Group is responsible
for operating the Company's nuclear generating stations. The Gas Services Group
is responsible for managing the Company's gas operations. The Company is
currently planning to have each business unit eventually operate as an
individual profit center, separate from the other business units.
<PAGE>25
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Age at Effective Date of Election
Name Dec. 31, 1994 Position to Present Position
---- ------------- -------- -------------------
<S> <C> <C> <C>
J. F. Paquette, Jr............. 60 Chairman and Chief Executive Officer............... April 16, 1990
C. A. McNeill, Jr.............. 55 President and Chief Operating Officer.............. April 16, 1990
W. L. Bardeen.................. 56 Senior Vice President and Group
Executive - Consumer Energy
Services Group.................................. March 1, 1994
J. W. Durham................... 57 Senior Vice President and General Counsel.......... October 24, 1988
W. J. Kaschub.................. 52 Senior Vice President - Human Resources............ June 10, 1991
G. S. King..................... 54 Senior Vice President - Corporate and
Public Affairs.................................. October 1, 1992
K. G. Lawrence................. 47 Senior Vice President - Finance and Chief
Financial Officer............................... March 1, 1994
J. M. Madara, Jr............... 51 Senior Vice President and Group
Executive - Power Generation Group.............. March 1, 1994
R. J. Patrylo.................. 48 Senior Vice President and Group
Executive - Gas Services Group.................. August 1, 1994
D. M. Smith.................... 61 Senior Vice President - Nuclear Generation
Group and Chief Nuclear Officer................. March 1, 1994
A. J. Weigand.................. 56 Senior Vice President and Group
Executive - Bulk Power Enterprises ............. March 1, 1994
J. M. Bauer.................... 48 Vice President - Customer Service.................. April 13, 1994
G. A. Cucchi................... 45 Vice President - Corporate Planning and
Development..................................... March 1, 1994
D. R. Helwig................... 43 Vice President - Power Delivery.................... March 1, 1995
T. P. Hill, Jr................. 46 Vice President and Controller...................... January 1, 1991
K. C. Holland.................. 42 Vice President - Information Systems
and Chief Information Officer................... March 21, 1994
W. G. MacFarland, IV........... 45 Vice President - Limerick Generating
Station......................................... March 1, 1995
G. C. Miller................... 50 Vice President - Philadelphia Region............... October 25, 1994
J. B. Mitchell................. 46 Vice President - Finance and Treasurer............. December 1, 1994
W. E. Powell, Jr............... 58 Vice President - Support Services.................. January 30, 1995
G. R. Rainey................... 45 Vice President - Peach Bottom Atomic
Power Station................................... November 24, 1993
W. H. Smith, III............... 46 Vice President - Station Support................... March 1, 1994
T. C. Stapleford............... 56 Vice President - Bucks/Mont Region................. October 25, 1994
D. A. Thomas................... 48 Vice President - Marketing and Sales............... January 30, 1995
W. J. Williams................. 53 Vice President - Transmission and
Distribution Services........................... December 1, 1994
N. J. Zausner.................. 41 Vice President - Power Transactions................ October 11, 1994
K. K. Dodd..................... 44 Corporate Secretary................................ November 1, 1994
</TABLE>
The present term of office of each of the above executive officers extends
to the first meeting of the Company's Board of Directors after the next annual
election of Directors (scheduled to be held April 12, 1995).
On January 30, 1995, the Board of Directors announced its intention to
elect Mr. McNeill to the additional position of Chief Executive Officer at the
Company's Board of Directors meeting on April 12, 1995. Mr. Paquette will
continue as Chairman of the Board and Chairman of the Executive Committee until
his retirement in 1997.
<PAGE>26
Prior to his election to his current position with the Company, Mr.
Paquette was Chairman, President and Chief Executive Officer of the Company.
Prior to his election to his current position with the Company, Mr. McNeill
was Executive Vice President - Nuclear of the Company.
Prior to his election to his current position with the Company, Mr. Bardeen
was Senior Vice President - Finance and Chief Financial Officer. Prior to
joining the Company in 1992, Mr. Bardeen was Vice President - Finance and
Controller for Bell Atlantic Corporation.
Prior to joining the Company in 1991, Mr. Kaschub was Vice President of
Human Resources with GTE North Incorporated.
Prior to joining the Company in 1992, Mrs. King served as Commissioner of
the United States Social Security Administration.
Prior to his election to his current position with the Company, Mr.
Lawrence was Vice President - Gas Operations.
Prior to his election to his current position with the Company, Mr. Madara
was Vice President - Production, Assistant Manager - Mechanical Engineering and
General Manager - Nuclear Quality Assurance.
Prior to joining the Company in 1994, Mr. Patrylo was Senior Vice President
- Gas Services Business Unit at Niagara Mohawk Power Corporation and President
of RJP Associates, Inc., a business consulting firm.
Prior to his election to his current position with the Company, Mr. D. M.
Smith was Senior Vice President - Nuclear and Vice President - Peach Bottom
Atomic Power Station.
Prior to his election to his current position with the Company, Mr. Weigand
was Vice President - Transmission and Distribution Systems.
Prior to joining the Company in March 1994, Mrs. Holland was Director of
Technology Services and Director of Business Services and Operations at
SmithKline Beecham, Inc.
Prior to joining the Company in 1995, Mr. Powell was Vice President -
Logistics with E.I. DuPont DeNemours & Co.
Prior to joining the Company in 1995, Mr. Thomas was General Manager -
American Parts and Services, Manager - Utility Parts Sales, Manager - Gateway
Region - Utility Sales, and Manager - Product Services at General Electric
Company.
Prior to joining the Company in 1994, Ms. Zausner was Vice President of
U.S. Generating Company, an independent power producer.
Prior to their election to the positions shown above, the following
executive officers held other positions with the Company since January 1, 1990:
Ms. Bauer was Operations Manager - Montgomery County Division and Manager -
Nuclear Operations; Mr. Cucchi was Director of System Planning and Performance;
Mr. Helwig was Vice President - Limerick Generating Station and Vice President -
Nuclear Engineering and Services; Mr. Hill was Controller; Mr. MacFarland was
Outage Director - Limerick, Manager - Nuclear Maintenance, Manager - Peach
Bottom Installation Division and Senior Project Manager - Limerick Nuclear
Engineering; Mr. Miller was Vice President - Philadelphia North Division,
Division Superintendent - Transmission and Distribution, Manager - Transmission
and Distribution Services and General Manager - Philadelphia, North Division;
Mr. Mitchell was Director of Financial Operations and Assistant Treasurer; Mr.
Rainey was Vice President - Nuclear
<PAGE>27
Support and Plant Manager - Eddystone Generating Station; Mr. W. H. Smith, III
was Vice President - Planning and Performance, Manager - Corporate Strategy and
Performance, General Manager - Human Resources, Director - Organization Change
Task Force and Manager - Purchasing; Mr. Stapleford was Vice President -
Montgomery County Division, General Manager - Montgomery County Division,
Manager - Purchasing and Manager - Service Operations; Mr. Williams was Vice
President - Bucks County Division, Division Manager - Bucks County, Manager -
Transmission and Distribution Operations; and Ms. Dodd was Assistant General
Counsel.
There are no family relationships among directors or executive officers of
the Company.
<PAGE>28
ITEM 2. PROPERTIES
The principal plants and properties of the Company are subject to the lien
of the Mortgage under which the Company's First and Refunding Mortgage Bonds are
issued.
The following table sets forth the Company's net electric generating
capacity by station at December 31, 1994:
<TABLE>
<CAPTION>
Net Generating Estimated
Capacity (1) Retirement
Station Location (Kilowatts) Year
<S> <C> <C> <C>
Nuclear
Limerick................. ................ Limerick Twp., PA ............. 2,110,000(2) 2024, 2029
Peach Bottom.............................. Peach Bottom Twp., PA.......... 886,000(2)(3) 2013, 2014
Salem .................................. Hancock's Bridge, NJ........... 942,000(3) 2016, 2020
Hydro
Conowingo................................. Harford Co., MD................ 512,000 2014
Pumped Storage
Muddy Run................................. Lancaster Co., PA.............. 880,000 2014
Fossil (Steam Turbines)
Cromby .................. ............... Phoenixville, PA............... 345,000 2004
Delaware.................. ............... Philadelphia, PA............... 250,000 (4)
Eddystone................................. Eddystone, PA.................. 1,341,000 2009, 2010, 2011
Schuylkill................................ Philadelphia, PA............... 166,000 (4)
Conemaugh................................. New Florence, PA............... 352,000(3) 2005, 2006
Keystone...................... ........... Shelocta, PA................... 357,000(3) 2002, 2003
Fossil (Gas Turbines)
Chester .................................. Chester, PA.................... 39,000 (4)
Croydon .................. ............... Bristol Twp., PA............... 369,000 (4)
Delaware.................. ............... Philadelphia, PA............... 54,000 (4)
Eddystone................................. Eddystone, PA.................. 56,000 (4)
Falls .................................. Falls Twp., PA................. 45,000 (4)
Moser .................................. Lower Pottsgrove Twp., PA...... 45,000 (4)
Richmond.................. ............... Philadelphia, PA............... 96,000 (4)
Schuylkill................................ Philadelphia, PA............... 28,000 (4)
Southwark................................. Philadelphia, PA............... 52,000 (4)
Salem .................................. Hancock's Bridge, NJ........... 18,000(3) 1996
Fossil (Internal Combustion)
Cromby .................. ............... Phoenixville, PA............... 2,700 (4)
Delaware.................. ............... Philadelphia, PA............... 2,700 (4)
Schuylkill................................ Philadelphia, PA............... 2,800 (4)
Keystone...................... ........... Shelocta, PA................... 2,300(3) 2003
Conemaugh................................. New Florence, PA............... 2,300(3) 2006
-----
Total.................................................................... 8,955,800
=========
<FN>
---------------
(1) Summer rating.
(2) Effective January 26, 1995, Peach Bottom Unit No. 2 was rerated to
1,093,000 kilowatts, making the entire station's capacity 2,128,000
kilowatts, of which the Company's portion is 904,000 kilowatts. Effective
February 25, 1995, Limerick Unit No. 2 was rerated to 1,115,000 kilowatts,
making the entire station's capacity 2,170,000 kilowatts. These rerates
increased the Company's net generating capacity to 9,033,800 kilowatts.
(3) Company portion.
(4) Retirement dates are under on-going review by the Company. Current plans
call for the continued operation of these units beyond 1995.
</FN>
</TABLE>
<PAGE>29
The following table sets forth the Company's major transmission and
distribution lines in service at December 31, 1994:
<TABLE>
<CAPTION>
Voltage in Kilovolts (Kv) Conductor Miles
Transmission:
<S> <C>
500 Kv........................................................ 844
220 Kv........................................................ 1,692
132 Kv........................................................ 742
66 Kv......................................................... 591
34 Kv and below............................................... 38
Distribution:
34 Kv and below............................................... 52,269
</TABLE>
At December 31, 1994, the Company's principal electric distribution system
included 12,588 pole-line miles of overhead lines and 20,748 cable miles of
underground cables.
The Company is in the midst of an ongoing program to implement a 34 Kv
distribution system for a large portion of outlying suburban areas. These areas
are now primarily served by a combination of 4 Kv distribution circuits, which
are being phased out, and direct connections to 34 Kv subtransmission lines,
which are being converted to 34 Kv distribution circuits. The new system is
designed to improve the Company's ability to meet the growing load requirements
of suburban areas, improve system reliability and reduce service interruptions.
The following table sets forth the Company's gas pipeline miles at December
31, 1994:
<TABLE>
<CAPTION>
Pipeline Miles
<S> <C>
Transmission...................................................... 29
Distribution...................................................... 5,379
Service Piping.................................................... 4,550
-----
Total......................................................... 9,958
=====
</TABLE>
The Company has a liquefied natural gas facility located in West
Conshohocken, Pennsylvania which has a storage capacity of 1,200,000 mcf and a
sendout capacity of 200,000 mcf/day and a propane-air plant located in Chester,
Pennsylvania, with a tank storage capacity of 1,980,000 gallons and a peaking
capability of 30,000 mcf/day. In addition, the Company owns 21 natural gas city
gate stations at various locations throughout its gas service territory.
The Company owns an office building in downtown Philadelphia, in which it
maintains its headquarters, and also owns or leases elsewhere in its service
area a number of properties which are used for office, service and other
purposes. Information regarding rental and lease commitments is incorporated
herein by reference to note 15 of Notes to Consolidated Financial Statements
included in the Company's Annual Report to Shareholders for the year 1994.
The Company maintains property insurance against loss or damage to its
principal plants and properties by fire or other perils, subject to certain
exceptions. Although it is impossible to determine the total amount of the loss
that may result from an occurrence at a nuclear generating station, the Company
maintains its $2.75 billion proportionate share for each station. Under the
terms of the various insurance agreements, the Company could be assessed up to
$44 million for property losses incurred at any plant insured by the insurance
companies (see "ITEM 1. BUSINESS - Electric Operations - General"). The Company
is self-insured to the extent that any losses may exceed the amount of insurance
maintained. Any such losses, if not recovered through the ratemaking process,
could have a material adverse effect on the Company's financial condition and
results of operations.
<PAGE>30
ITEM 3. LEGAL PROCEEDINGS
On April 11, 1991, 33 former employees of the Company filed an amended
class action suit against the Company in the Eastern District Court on behalf of
approximately 141 persons who retired from the Company between January and April
1990. The lawsuit, filed under the Employee Retirement Income Security Act
(ERISA), alleges that the Company fraudulently and/or negligently misrepresented
or concealed facts concerning the Company's 1990 Early Retirement Plan and thus
induced the plaintiffs to retire or not to defer retirement immediately before
the initiation of the 1990 Early Retirement Plan, thereby depriving the
plaintiffs of substantial pension and salary benefits. In June 1991, the
plaintiffs filed amended complaints adding additional plaintiffs. The lawsuit
names the Company, the Company's Service Annuity Plan (SAP) and two Company
officers as defendants. The plaintiffs seek approximately $20 million in damages
representing, among other things, increased pension benefits and nine months
salary pursuant to the terms of the 1990 Early Retirement Plan, as well as
punitive damages. On March 24 and 25, 1994, the case was tried in Eastern
District Court on the issue of liability. On May 13, 1994, the Eastern District
Court issued a decision, finding the Company liable to all plaintiffs who made
inquiries about any early retirement plan after March 12, 1990 and retired prior
to April 1990. The Eastern District Court will try the case on the issue of
damages. The ultimate outcome of this matter is not expected to have a material
adverse effect on the Company's financial condition.
On May 2, 1991, 37 former employees of the Company filed an amended class
action suit against the Company, the SAP and three former Company officers in
the Eastern District Court, on behalf of 147 former employees who retired from
the Company between January and June 1987. The lawsuit was filed under ERISA and
concerns the August 1, 1987 amendment to the SAP. The plaintiffs claim that the
Company concealed or misrepresented the fact that the amendment to the SAP was
planned to increase retirement benefits and, as a consequence, they retired
prior to the amendment to the SAP and were deprived of significant retirement
benefits. The complaint does not specify any dollar amount of damages. On March
24 and 25, 1994, the case was tried in Eastern District Court on the issue of
liability. On May 13, 1994, the Eastern District Court issued a decision,
finding the Company liable to all plaintiffs who made inquiries about any
pension improvement after March 1, 1987 and retired prior to June 1987. The
Eastern District Court will try the case on the issue of damages. The ultimate
outcome of this matter is not expected to have a material adverse effect on the
Company's financial condition.
On May 25, 1993, the Company received a letter from attorneys on behalf of
a shareholder demanding that the Company's Board of Directors commence legal
action against certain Company officers and directors with respect to the
Company's credit and collections practices. The basis of the demand was the
findings and conclusions contained in the Credit and Collection section of the
May 1991 PUC Management Audit Report prepared by Ernst & Young. At its June 28,
1993 meeting, the Board of Directors appointed a special committee of directors
to consider whether such legal action would be in the best interests of the
Company and its shareholders. On March 14, 1994, upon the recommendation of the
special committee, the Board of Directors approved a resolution refusing the
shareholder demand set forth in the May 25, 1993 demand letter, and authorizing
and directing officers of the Company to take all steps necessary to terminate
the derivative suit discussed below.
On July 26, 1993, attorneys on behalf of two shareholders filed a
shareholder derivative action in the Court of Common Pleas of Philadelphia
County against several of the Company's present and former officers alleging
mismanagement, waste of corporate assets and breach of fiduciary duty in
connection with the Company's credit and collections practices. A similar suit
by the same plaintiffs previously had been withdrawn while on appeal after
dismissal by the court for failure to first serve a demand on the Company's
Board of Directors. The derivative suit is based on the findings and conclusions
contained in the Credit and Collections section of the May 1991 PUC Management
Audit Report prepared by Ernst & Young. The plaintiffs seek, among other things,
an unspecified amount of damages and the awarding to the plaintiffs of the costs
and disbursements of the action, including attorneys' fees. On April 12, 1994,
the Company filed a motion for summary judgment seeking termination of the
action pursuant to the Board of Directors' resolution of March 14, 1994. Any
monetary damages which may be recovered, net of expenses, would be paid to the
Company because the lawsuit is brought derivatively by shareholders on behalf of
the Company.
<PAGE>31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the New York and Philadelphia Stock
Exchanges. At January 31, 1995, there were 196,717 owners of record of the
Company's common stock. The information with respect to the prices of and
dividends on the Company's common stock for each quarterly period during 1993
and 1994 is incorporated herein by reference to "Operating Statistics" in the
Company's Annual Report to Shareholders for the year 1994.
The book value of the Company's common stock at December 31, 1994 was
$19.41 per share.
Dividends may be declared on common stock out of funds legally available
for dividends whenever full dividends on all series of preferred stock
outstanding at the time have been paid or declared and set apart for payment for
all past quarter-yearly dividend periods. No dividends may be declared on common
stock, however, at any time when the Company has failed to satisfy the sinking
fund obligations with respect to certain series of the Company's preferred
stock. Future dividends on common stock will depend upon earnings, the Company's
financial condition and other factors, including the availability of cash.
The Company's Articles prohibit payment of any dividend on, or other
distribution to the holders of, common stock if, after giving effect thereto,
the capital of the Company represented by its common stock together with its
Other Paid-In Capital and Retained Earnings is, in the aggregate, less than the
involuntary liquidating value of its then outstanding preferred stock. At
December 31, 1994, such capital ($4.30 billion) amounted to about 12 times the
liquidating value of the outstanding preferred stock ($370.2 million).
The Company may not declare dividends on any shares of its capital stock in
the event that: (1) the Company exercises its right to extend the interest
payment periods on the Company's 9% Deferrable Interest Subordinated Debentures,
Series A (Subordinated Debentures), which were issued to PECO Energy Capital,
L.P.; (2) the Company defaults on its guarantee of the payment of distributions
on the Cumulative Monthly Income Preferred Securities of PECO Energy Capital,
L.P.; or (3) an event of default occurs under the Indenture under which the
Subordinated Debentures are issued.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the last five years for the Company and
its subsidiaries is incorporated herein by reference to "Financial Statistics"
and "Operating Statistics" in the Company's Annual Report to Shareholders for
the year 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information with respect to this caption is incorporated herein by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report to Shareholders for the
year 1994.
<PAGE>32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information with respect to this caption is incorporated herein by
reference to "Consolidated Financial Statements" and "Financial Statistics" in
the Company's Annual Report to Shareholders for the year 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors.
The information required for Directors is included in the Proxy Statement
of the Company in connection with its 1995 Annual Meeting of Shareholders to be
held April 12, 1995, under the heading "Proposal 1. Election of Directors" and
is incorporated herein by reference.
(b) Identification of Executive Officers.
The information required for Executive Officers is set forth in "ITEM 1.
BUSINESS - Executive Officers of the Registrant" of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 1995 Annual Meeting of
Shareholders to be held April 12, 1995, under the heading "Executive
Compensation Disclosure" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 1995 Annual Meeting of
Shareholders to be held April 12, 1995, under the heading "Proposal 1. Election
of Directors" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 1995 Annual Meeting of
Shareholders to be held April 12, 1995, under the heading "Proposal 1. Election
of Directors" and is incorporated herein by reference.
<PAGE>33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
Reference (Page)
Form 10-K Annual Report
Index Annual Report to Shareholders
<S> <C> <C>
Data incorporated by reference from the Annual Report to Shareholders for the
year 1994:
Report of Independent Accountants............................................. - 18
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992............................................ - 19
Consolidated Balance Sheets as of December 31, 1994 and 1993.................. - 20
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992............................................ - 22
Consolidated Statements of Changes in Common Shareholders'
Equity and Preferred Stock for the years ended
December 31, 1994, 1993 and 1992............................................ - 23
Notes to Consolidated Financial Statements.................................... - 24
Data submitted herewith:
Report of Independent Accountants............................................. 34 -
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1994, 1993 and 1992....................... 35 -
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
With the exception of the consolidated financial statements and the
independent accountants' report listed in the above index and the information
referred to in Items 1, 2, 5, 6, 7 and 8, all of which is included in the
Company's Annual Report to Shareholders for the year 1994 and incorporated by
reference into this Form 10-K Annual Report, the Annual Report to Shareholders
for the year 1994 is not to be deemed "filed" as part of this Form 10-K.
<PAGE>34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
PECO Energy Company:
Our report on the consolidated financial statements of PECO Energy Company
has been incorporated by reference in this Form 10-K from page 18 of the 1994
Annual Report to Shareholders of PECO Energy Company. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 30, 1995
<PAGE>35
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C-Additions Column D Column E
-------- -------- ------------------ -------- --------
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts Deductions End of
Description Period Expenses -Describe -Describe(1) Period
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1994
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $15,086 $44,186 $ - $42,772 $16,500
======= ======= ===== ======= =======
TOTAL.......................... $15,086 $44,186 $ - $42,772 $16,500
======= ======= ===== ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1993
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $17,916 $40,758 $ - $43,588 $15,086
======= ======= ===== ======= =======
TOTAL.......................... $17,916 $40,758 $ - $43,588 $15,086
======= ======= ===== ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1992
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS............................. $30,028 $42,195 $ - $54,307 $17,916
======= ======= ===== ======= =======
TOTAL.......................... $30,028 $42,195 $ - $54,307 $17,916
======= ======= ===== ======= =======
<FN>
---------------
(1) Write-off of individual accounts receivable.
</FN>
</TABLE>
<PAGE>36
Exhibits
Certain of the following exhibits have been filed with the Securities and
Exchange Commission (Commission) pursuant to the requirements of the Acts
administered by the Commission. Such exhibits are identified by the references
following the listing of each such exhibit and are incorporated herein by
reference under Rule 24 of the Commission's Rules of Practice. Certain other
instruments which would otherwise be required to be listed below have not been
so listed because such instruments do not authorize securities in an amount
which exceeds 10% of the total assets of the Company and its subsidiaries on a
consolidated basis and the Company agrees to furnish a copy of any such
instrument to the Commission upon request.
Exhibit No. Description
3-1 Amended and Restated Articles of Incorporation of PECO Energy
Company (1993 Form 10-K, Exhibit 3-1).
3-2 Bylaws of the Company, adopted February 26, 1990 and amended
January 24, 1994 (1993 Form 10-K, Exhibit 3-2).
4-1 First and Refunding Mortgage dated May 1, 1923 between The
Counties Gas and Electric Company (predecessor to the Company)
and Fidelity Trust Company, Trustee (First Fidelity Bank,
National Association, successor), (Registration No. 2-2881,
Exhibit B-1).
4-2 Supplemental Indentures to the Company's First and Refunding
Mortgage:
<TABLE>
<CAPTION>
Dated as of File Reference Exhibit No.
<S> <C> <C>
May 1, 1927 2-2881 B-1(c)
March 1, 1937 2-2881 B-1(g)
December 1, 1941 2-4863 B-1(h)
November 1, 1944 2-5472 B-1(i)
December 1, 1946 2-6821 7-1(j)
September 1, 1957 2-13562 2(b)-17
May 1, 1958 2-14020 2(b)-18
May 1, 1964 2-25628 4(b)-21
October 1, 1967 2-28242 2(b)-23
March 1, 1968 2-34051 2(b)-24
May 1, 1970 2-38849 2(b)-28
December 15, 1970 2-41081 2(b)-29
December 15, 1971 2-44195 2(b)-31
January 15, 1973 2-49842 2(b)-33
March 1, 1981 2-72802 4-46
March 1, 1981 2-72802 4-47
November 15, 1984 1984 Form 10-K 4-2(a)
December 1, 1984 1984 Form 10-K 4-2(b)
May 15, 1985 1985 Form 10-K 4-2(a)
October 1, 1985 1985 Form 10-K 4-2(b)
November 1, 1986 1986 Form 10-K 4-2(c)
July 15, 1987 Form 8-K dated July 21, 1987 4(c)-63
July 15, 1987 Form 8-K dated July 21, 1987 4(c)-64
August 1, 1987 33-17438 4(c)-65
October 15, 1987 Form 8-K dated October 7, 1987 4(c)-66
October 15, 1987 Form 8-K dated October 7, 1987 4(c)-67
April 15, 1988 Form 8-K dated April 11, 1988 4(e)-68
</TABLE>
<PAGE>37
<TABLE>
<CAPTION>
Dated as of File Reference Exhibit No.
<S> <C> <C>
April 15, 1988 Form 8-K dated April 11, 1988 4(e)-69
June 15, 1989 33-31289 4(e)-70
October 1, 1989 Form 8-K dated October 6, 1989 4(e)-71
October 1, 1989 Form 8-K dated October 6, 1989 4(e)-72
October 1, 1989 Form 8-K dated October 18, 1989 4(e)-73
October 15, 1990 1990 Form 10-K 4(e)-74
October 15, 1990 1990 Form 10-K 4(e)-75
April 1, 1991 1991 Form 10-K 4(e)-76
December 1, 1991 1991 Form 10-K 4(e)-77
January 15, 1992 Form 8-K dated January 27, 1992 4(e)-78
April 1, 1992 March 31, 1992 Form 10-Q 4(e)-79
April 1, 1992 March 31, 1992 Form 10-Q 4(e)-80
June 1, 1992 June 30, 1992 Form 10-Q 4(e)-81
June 1, 1992 June 30, 1992 Form 10-Q 4(e)-82
July 15, 1992 June 30, 1992 Form 10-Q 4(e)-83
September 1, 1992 1992 Form 10-K 4(e)-84
September 1, 1992 1992 Form 10-K 4(e)-85
March 1, 1993 1992 Form 10-K 4(e)-86
March 1, 1993 1992 Form 10-K 4(e)-87
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-88
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-89
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-90
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-91
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-92
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-93
November 1, 1993 Form 8-A dated October 27, 1993 4(e)-94
November 1, 1993 Form 8-A dated October 27, 1993 4(e)-95
</TABLE>
4-3 Deposit Agreement with respect to $7.96 Cumulative Preferred
Stock (Form 8-K dated October 20, 1992, Exhibit 4-5).
4-4 PECO Energy Company Dividend Reinvestment and Stock Purchase
Plan, as amended January 28, 1994 (Post-Effective Amendment No. 1
to Registration No. 33-43523, Exhibit 28).
4-5 Indenture, dated as of July 1, 1994, between the Company and
Meridian Trust Company, as trustee.
4-6 Deferrable Interest Subordinated Debenture Certificate, Series A.
4-7 Payment and Guarantee Agreement, dated July 27, 1994, executed by
the Company in favor of the holders of Cumulative Monthly Income
Preferred Securities of PECO Energy Capital, L.P.
10-1 Pennsylvania-New Jersey-Maryland Interconnection Agreement dated
September 26, 1956 (Registration No. 2-13340, Exhibit 13-40) and
agreements supplemental thereto:
<TABLE>
<CAPTION>
Dated as of File Reference Exhibit No.
<S> <C> <C>
March 1, 1965 2-38342 5-1(a)
January 1, 1971 2-40368 5-1(b)
June 1, 1974 2-51887 5-1(c)
September 1, 1977 1989 Form 10-K 10-1(a)
October 1, 1980 1989 Form 10-K 10-1(b)
June 1, 1981 1989 Form 10-K 10-1(c)
</TABLE>
<PAGE>38
10-2 Agreement, dated November 24, 1971, between Atlantic City
Electric Company, Delmarva Power & Light Company, Public Service
Electric and Gas Company and the Company for ownership of Salem
Nuclear Generating Station (1988 Form 10-K, Exhibit 10-3);
supplemental agreement dated September 1, 1975; and supplemental
agreement dated January 26, 1977 (1991 Form 10-K, Exhibit 10-3).
10-3 Agreement, dated November 24, 1971, between Atlantic City
Electric Company, Delmarva Power & Light Company, Public Service
Electric and Gas Company and the Company for ownership of Peach
Bottom Atomic Power Station; supplemental agreement dated
September 1, 1975; and supplemental agreement dated January 26,
1977 (1988 Form 10-K, Exhibit 10-4).
10-4 Deferred Compensation and Supplemental Pension Benefit Plan (1981
Form 10-K, Exhibit 10-16).*
10-5 Philadelphia Electric Company Stock Price Appreciation Plan,
effective June 1, 1988 (1988 Form 10-K, Exhibit 4-7).*
10-6 PECO Energy Company 1989 Long-Term Incentive Plan (Registration
No. 33-30317, Exhibit 28).*
10-7 Amended and Restated Limited Partnership Agreement of PECO Energy
Capital, L.P., dated July 25, 1994.
10-8 Stock Purchase Agreement between the Company and Delmarva Power &
Light Company, dated May 24, 1994.
10-9 Agreement between the Company and Delmarva Power & Light Company
for the purchase and sale of capacity and energy, dated May 24,
1994.
12-1 Ratio of Earnings to Fixed Charges.
12-2 Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends.
13 Management's Discussion and Analysis of Financial Condition and
Results of Operations, Consolidated Financial Statements, Notes
to Consolidated Financial Statements, Financial Statistics, and
Operating Statistics of the Annual Report to Shareholders for the
year 1994.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
---------------
* Compensatory plans or arrangements in which directors or officers of
the Company participate and which are not available to all employees.
<PAGE>39
Reports on Form 8-K
During the quarter ended December 31, 1994, the Company filed Current
Reports on Form 8-K, dated:
October 7, 1994 reporting information under "ITEM 5. OTHER
EVENTS" concerning the resolving of all of the issues associated
with the Company's single-issue rate increase to recover the
costs associated with the implementation of Statement of
Financial Accounting Standards No. 106 - "Employers' Accounting
for Postretirement Benefits Other Than Pensions"; and
October 13, 1994 reporting information under "ITEM 5. OTHER
EVENTS" relating to the issuance of a tentative order issued by
the Pennsylvania Public Utility Commission permitting recovery of
a portion of the costs associated with the implementation of
Statement of Financial Accounting Standards No. 106 - "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
Subsequent to December 31, 1994, the Company filed a Current Report on
Form 8-K, dated:
February 2, 1995 reporting information under "ITEM 5. OTHER
EVENTS" relating to a press release issued by the Company
concerning management changes.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, PECO ENERGY COMPANY, has duly caused this
annual report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, and Commonwealth of Pennsylvania, on
the 24th day of March 1995.
PECO ENERGY COMPANY
By /s/ J. F. PAQUETTE, JR.
J. F. Paquette, Jr.,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/J. F. PAQUETTE, JR.
J. F. Paquette, Jr. Chairman of the Board and Director March 24, 199
(Principal Executive Officer)5
/s/C. A. MCNEILL, JR.
C. A. McNeill, Jr. President and Director March 24, 1995
(Principal Operating Officer)
/s/ K. G. LAWRENCE
K. G. Lawrence Senior Vice President - Finance March 24, 1995
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
This annual report has also been signed below by C. A. McNeill, Jr.,
Attorney-in-Fact, on behalf of the following Directors on the date indicated:
SUSAN W. CATHERWOOD JOSEPH C. LADD
M. WALTER D'ALESSIO EDITHE J. LEVIT
R. G. GILMORE KINNAIRD R. MCKEE
R. H. GLANTON JOSEPH J. MCLAUGHLIN
JAMES A. HAGEN JOHN M. PALMS
NELSON G. HARRIS RONALD RUBIN
ROBERT SUBIN
By /s/ C. A. MCNEILL, JR. March 24, 1995
C. A. McNeill, Jr.,
Attorney-in-Fact
EXHIBIT 4.5
PECO ENERGY COMPANY
AND
Meridian Trust Company, as Trustee
INDENTURE
Dated as of July 1, 1994
Providing for the Issuance of
Deferrable Interest Subordinated Debentures in Series
and for
9% Deferrable Interest Subordinated Debentures, Series A
<PAGE>
i
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions. ......................................2
SECTION 1.02 Other Definitions. ................................7
SECTION 1.03 Incorporation by Reference of Trust
Indenture Act .....................................7
SECTION 1.04 Rules of Construction. ............................8
SECTION 1.05. Acts of Holders. ..................................8
ARTICLE 2 THE DEBENTURES; THE SERIES A DEBENTURES
SECTION 2.01 Issue of Debentures Generally .....................9
SECTION 2.02 Form of the Series A Debentures;
Denominations. ...................................11
SECTION 2.03 Payment of Principal and Interest ................11
SECTION 2.04 Execution and Authentication .....................12
SECTION 2.05 Registrar and Paying Agent. ......................12
SECTION 2.06 Paying Agent to Hold Money in Trust ..............13
SECTION 2.07 Debentureholder Lists. ...........................14
SECTION 2.08 Transfer and Exchange. ...........................14
SECTION 2.09 Replacement Debentures ...........................15
SECTION 2.10 Outstanding Debentures; Determinations
of Holders' Action ...............................16
SECTION 2.11 Temporary Debentures .............................16
SECTION 2.12 Cancellation .....................................17
SECTION 2.13 Defaulted Interest ...............................17
ARTICLE 3 REDEMPTION
SECTION 3.01 Redemption; Notice to Trustee ....................18
SECTION 3.02 Selection of Debentures to be Redeemed ...........18
SECTION 3.03 Notice of Redemption .............................19
SECTION 3.04 Effect of Notice of Redemption ...................19
SECTION 3.05 Deposit of Redemption Price ......................20
SECTION 3.06 Debentures Redeemed in Part ......................20
ARTICLE 4 COVENANTS
SECTION 4.01 Payment of Debentures ............................20
SECTION 4.02 Prohibition Against Dividends, etc.
During an Event of Default or
an Extension Period ..............................21
SECTION 4.03 SEC Reports ......................................21
SECTION 4.04 Compliance Certificates ..........................22
SECTION 4.05 Relationship with PECO Energy Capital ............22
SECTION 4.06 Further Instruments and Acts .....................22
SECTION 4.07 Payments for Consents ............................23
ARTICLE 5 SUCCESSOR CORPORATION
SECTION 5.01 When the Company May Merge, Etc ..................23
<PAGE>
ii
Page
ARTICLE 6 DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default ................................24
SECTION 6.02 Acceleration .....................................25
SECTION 6.03 Other Remedies ...................................26
SECTION 6.04 Waiver of Past Defaults ..........................26
SECTION 6.05 Control by Majority or the Special
Representative ...................................27
SECTION 6.06 Limitation on Suits ..............................27
SECTION 6.07 Rights of Holders to Receive Payment .............27
SECTION 6.08 Collection Suit by the Trustee ...................28
SECTION 6.09 The Trustee May File Proofs of Claim .............28
SECTION 6.10 Priorities .......................................29
SECTION 6.11 Undertaking for Costs ............................29
SECTION 6.12 Waiver of Stay, Extension or Usury Laws ..........29
ARTICLE 7 THE TRUSTEE
SECTION 7.01 Duties of the Trustee ............................30
SECTION 7.02 Rights of the Trustee ............................31
SECTION 7.03 Individual Rights of the Trustee .................32
SECTION 7.04 The Trustee's Disclaimer .........................32
SECTION 7.05 Notice of Defaults ...............................32
SECTION 7.06 Reports by Trustee to Holders ....................32
SECTION 7.07 Compensation and Indemnity .......................33
SECTION 7.08 Replacement of Trustee ...........................34
SECTION 7.09 Successor Trustee by Merger ......................35
SECTION 7.10 Eligibility; Disqualification ....................35
SECTION 7.11 Preferential Collection of Claims
Against the Company ..............................35
ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE;
DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS
SECTION 8.01 Satisfaction and Discharge of Indenture ..........35
SECTION 8.02 Application by Trustee of Funds Deposited
for Payment of Debentures ........................36
SECTION 8.03 Repayment of Moneys Held by Paying Agent .........37
SECTION 8.04 Return of Moneys Held by the Trustee and
Paying Agent Unclaimed for Three Years ...........37
ARTICLE 9 AMENDMENTS
SECTION 9.01 Without Consent of Holders .......................37
SECTION 9.02 With Consent of Holders ..........................38
SECTION 9.03 Compliance with Trust Indenture Act ..............39
SECTION 9.04 Revocation and Effect Of Consents,
Waivers and Actions ..............................39
SECTION 9.05 Notation on or Exchange of Debentures ............40
SECTION 9.06 Trustee to Sign Supplemental Indentures ..........40
SECTION 9.07 Effect of Supplemental Indentures ................40
ARTICLE 10 SUBORDINATION
SECTION 10.01 Debentures Subordinated to Senior
Indebtedness .....................................40
<PAGE>
iii
Page
SECTION 10.02 Priority and Payment of Proceeds in
Certain Events; Remedies Standstill ..............41
SECTION 10.03 Payments which May Be Made Prior to
Notice ...........................................42
SECTION 10.04 Rights of Holders of Senior Indebtedness
Not to Be Impaired ...............................42
SECTION 10.05 Trustee May Take Action to Effectuate
Subordination ....................................43
SECTION 10.06 Subrogation ......................................43
SECTION 10.07 Obligations of Company Unconditional;
Reinstatement ....................................44
SECTION 10.08 Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice ..................44
SECTION 10.09 Right of Trustee to Hold Senior
Indebtedness .....................................45
ARTICLE 11 MISCELLANEOUS
SECTION 11.01 Trust Indenture Act Controls .....................45
SECTION 11.02 Notices ..........................................46
SECTION 11.03 Communication by Holders with Other
Holders ..........................................47
SECTION 11.04 Certificate and Opinion as to Conditions
Precedent ........................................47
SECTION 11.05 Statements Required in Certificate or Opinion ....47
SECTION 11.06 Severability Clause ..............................48
SECTION 11.07 Rules by Trustee, Paying Agent and
Registrar ........................................48
SECTION 11.08 Legal Holidays ...................................48
SECTION 11.09 Governing Law ....................................48
SECTION 11.10 No Recourse Against Others .......................49
SECTION 11.11 Successors .......................................49
SECTION 11.12 Multiple Original Copies of this
Indenture ........................................49
SECTION 11.13 No Adverse Interpretation of Other Agreements ....49
SECTION 11.14 Table of Contents; Headings, Etc .................49
SECTION 11.15 Benefits of the Indenture ........................49
<PAGE>
iv
CROSS-REFERENCE TABLE
of Provisions of the Indenture
Required by the Trust Indenture Act of 1939
Trust Indenture Provision of
Act Section Indenture
Section 310(a)(1) 7.10
(a)(2) 7.10
(a)(3) Not Applicable
(a)(4) Not Applicable
(a)(5) Not Applicable
(b) 7.08; 7.10; 11.01
(c) Not Applicable
Section 311(a) 7.11
(b) 7.11
(c) Not Applicable
Section 312(a) 2.07
(b) 11.03
(c) 11.03
Section 313(a) 7.06
(b)(1) Not Applicable
(b)(2) 7.06
(c) 7.06; 11.02
(d) 7.06
Section 314(a) 4.03; 11.02
(b) Not Applicable
(c)(1) 2.02; 11.04
(c)(2) 2.02; 11.04
(c)(3) Not Applicable
(d) Not Applicable
(e) 11.05
(f) Not Applicable
Section 315(a) 7.01(2)
(b) 7.05; 11.02
(c) 7.01(1)
(d) 7.01(3)
(e) 6.11
Section 316(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) Not Applicable
(a)(last sentence) 2.10
(b) 6.07
Section 317(a)(1) 6.08
(a)(2) 6.09
(b) 2.06
Section 318(a) 11.01
-------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
1
INDENTURE, dated as of July 1, 1994, by and between PECO Energy
Company, a Pennsylvania corporation (the "Company"), and Meridian Trust Company,
a Pennsylvania trust company, as trustee (the "Trustee).
WHEREAS, the Company has formed a wholly owned subsidiary, PECO Energy
Capital Corp., which is the general partner of PECO Energy Capital, L.P., a
Delaware limited partnership, which intends to issue in series from time to time
its limited partner interests and to loan the proceeds thereof, together with
the investment by PECO Energy Capital Corp. in PECO Energy Capital, L.P., to the
Company.
WHEREAS, in order to evidence its intention to make such loans and to
accept the Debentures as evidence of such loans, and its approval of the terms
of the Series A Debentures (as hereinafter defined), PECO Energy Capital, L.P.
has joined in this Indenture.
WHEREAS, the Company has authorized the issuance of the Series A
Debentures to evidence its obligations with respect to a loan from PECO Energy
Capital, L.P. of the proceeds of a series of its preferred limited partner
interests designated 9% Cumulative Monthly Income Preferred Securities, Series A
and the related investment by PECO Energy Capital Corp. in PECO Energy Capital,
L.P., and to provide therefor, the Company has duly authorized the execution and
delivery of this Indenture.
WHEREAS, all things necessary to make the Series A Debentures when
duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Indenture a
valid and binding agreement of the Company, in accordance with its terms, have
been done.
NOW THEREFORE:
Each of the Company and the Trustee, intending to be legally bound
hereby, agrees as follows for the benefit of the other party and for the equal
and ratable benefit of the Holders of the securities issued hereunder, including
the Company's 9% Deferrable Interest Subordinated Debentures, Series A (the
"Series A Debentures"):
<PAGE>
2
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Additional Interest", with respect to the Series A Debentures, means
an amount equal to and payable at the same time as, any Additional Amounts
payable on the Series A Preferred Securities as defined in the action pursuant
to the Limited Partnership Agreement creating the Series A Preferred Securities
plus amounts, if any, which PECO Energy Capital would be required to pay as
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, with respect to the Series A Debentures. With respect to any other
series of Debentures, "Additional Amounts" shall have the meaning set forth in
the supplemental indenture creating such series.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. When used with respect to any Person,
"control" means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day that is not a Saturday, a Sunday or a day
on which banking institutions in The City of New York or Delaware are authorized
or required to close.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP.
"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock, including any Preferred Stock.
"Debentureholder" or "Holder" means a Person in whose name a Debenture
is registered on the Registrar's books.
"Debentures" shall mean any of the securities of any series issued,
authenticated and delivered under this Indenture.
<PAGE>
3
"Default" means any event which is, or after notice or passage of
time, or both, would be, an Event of Default pursuant to Section 6.01 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extension Period" means a period, up to 60 consecutive months, in
which the Company elects to extend the interest payment period on the Debentures
pursuant to Section 4.01(b) hereof; provided that no Extension Period shall
extend beyond the Stated Maturity date or Redemption Date of any series of
Subordinated Debentures.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board.
"General Partner" means PECO Energy Capital Corp., a Delaware
corporation and a wholly owned subsidiary of PECO Energy Company, as the general
partner of PECO Energy Capital, L.P., a Delaware limited partnership, or any
successor thereto that becomes a general partner of PECO Energy Capital pursuant
to the Limited Partnership Agreement.
"Guarantee Agreement" means that certain payment and guarantee
agreement issued by PECO Energy Company with respect to a series of Securities,
to irrevocably and nonconditionally agree to pay such Guarantee Payments (as
defined in the Guarantee Agreement) to the holders of the series of Preferred
Securities issued concurrently therewith.
"Holder" or "Debentureholder" means any Person in whose name a
Debenture is registered on the Registrar's books.
"Indebtedness" means without duplication, (i) the principal of and
premium (if any) in respect of (A) indebtedness of the Company for money
borrowed and (B) indebtedness evidenced by securities, debentures, bonds or
other similar instruments issued by the Company; (ii) all Capital Lease
Obligations of the Company; (iii) all obligations of the Company issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of the Company and all obligations of the Company under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of the Company for the
reimbursement of any obligor on any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction (other than obligations
<PAGE>
4
with respect to letters of credit securing obligations (other than obligations
described in (i) through (iii) above) entered into in the ordinary course of
business of the Company to the extent such letters of credit are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the third Business Day following receipt by the Company of a demand for
reimbursement following payment on the letter of credit); (v) all obligations of
the type referred to in clauses (i) through (iv) of other Persons and all
dividends of other Persons (other than the Preferred Securities) for the payment
of which, in either case, the Company is responsible or liable as obligor,
guarantor or otherwise; and (vi) all obligations of the type referred to in
clauses (i) through (v) of other Persons secured by any lien on any property or
asset of the Company (whether or not such obligation is assumed by the Company),
the amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; provided,
however, that Indebtedness will not include endorsements of negotiable
instruments for collection in the ordinary course of business.
"Indenture" means this indenture, as amended or supplemented from time
to time in accordance with the terms hereof, including the provisions of the TIA
that are deemed to be a part hereof.
"Issue Date", with respect to a series of Debentures, means the date
on which the Debentures of such series are originally issued.
"Limited Partnership Agreement" means the Amended and Restated Limited
Partnership Agreement of PECO Energy Capital, L.P. dated July 25, 1994, as it
may be amended from time to time.
"Officer" means, with respect to any corporation, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer, Assistant Treasurer or the Secretary of such corporation.
"Officer's Certificate" means a written certificate containing the
applicable information specified in Sections 11.04 and 11.05 hereof, signed in
the name of the Company by any one of its Officers, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion containing the applicable
information specified in Sections 11.04 and 11.05 hereof, by legal counsel who
is reasonably acceptable to the Trustee.
"PECO Energy Capital" means PECO Energy Capital, L.P., a Delaware
limited partnership.
<PAGE>
5
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Securities" means the limited partner interests issued from
time to time in series by PECO Energy Capital.
"Record date", with respect to any series of the Debentures, means the
date set to determine the holders of such series entitled to payment of interest
or principal or to vote, consent, make a request or exercise any other right
associated with such series.
"Redemption Date" or "redemption date", with respect to any Debenture
to be redeemed, means the date specified for the redemption of such Debenture in
accordance with the terms thereof and Article 3 of this Indenture.
"Redemption Price" or "redemption price", with respect to any
Debenture to be redeemed, means the price at which it is to be redeemed pursuant
to this Indenture and such Debenture.
"Regular record date", with respect to an interest payment on the
Debentures of a series, means the date set forth in paragraph 2 of the
Debentures of such series for the determination of Holders entitled to receive
payment of interest on the next succeeding interest payment date.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means all Indebtedness, except for Indebtedness
that is by its terms subordinated to or pari passu with the Debentures.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
shall not include any Indebtedness between or among the Company and any
Affiliates.
"Series A Debentures" means any of the Company's 9% Deferrable
Interest Subordinated Debentures, Series A issued under this Indenture.
"Special Representative" means a special representative appointed by
the holders of the Preferred Securities pursuant to Section 13.02(d) of the
Limited Partnership Agreement.
<PAGE>
6
"Stated Maturity", with respect to any Debenture, means, the date
specified for the Debentures as the fixed date on which the principal of the
Debentures is due and payable.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries, or (iii) one or more Subsidiaries.
"TIA" means the Trust Indenture Act of 1939, as amended and as in
effect on the date of this Indenture; provided, however, that if the TIA is
amended after such date, TIA means, to the extent required by any such
amendment, the TIA as so amended.
"Trust Officer", when used with respect to the Trustee, means the
chairman or vice-chairman of the Board of Directors, the chairman or
vice-chairman of the executive committee of the Board of Directors, the
President, any vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any account officer or assistant account officer, the
controller and any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Trustee" means the party named as the "Trustee" in the first
paragraph of this Indenture until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" means, with respect to a corporation, all classes of
Capital Stock then outstanding of such corporation normally entitled to vote in
elections of directors.
<PAGE>
7
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or
another Wholly Owned Subsidiary.
SECTION 1.02 Other Definitions.
TERM DEFINED IN SECTION
"Act" . . . . . . . . . . . . . . . . . . 1.05
"Bankruptcy Law" . . . . . . . . . . . . 6.01
"Custodian" . . . . . . . . . . . . . . . 6.01
"Event of Default". . . . . . . . . . . . 6.01
"Legal Holiday" . . . . . . . . . . . . . 11.08
"Notice of Default" . . . . . . . . . . . 6.01
"Paying Agent" . . . . . . . . . . . . . 2.05
"Register" . . . . . . . . . . . . . . . 2.05
"Registrar" . . . . . . . . . . . . . . . 2.05
"Successor" . . . . . . . . . . . . . . . 5.01
SECTION 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Debentures.
"indenture security holder" means a Debentureholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the Debentures.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
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8
SECTION 1.04 Rules of Construction.
Unless the context otherwise requires:
1. A term has the meaning assigned to it;
2. an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
3. "or" is not exclusive;
4. "including" means including, without limitation;
5. words in the singular include the plural, and words in the plural
include the singular; and
6. "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article,
Section or other subdivision.
SECTION 1.05. Acts of Holders.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders, may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of Holders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.
(3) The ownership of Debentures shall be proved by the Register.
(4) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Debenture shall bind every future
Holder of the same Debenture
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9
and the holder of every Debenture issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Debenture.
(5) If the Company solicits from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a resolution of its Board of Directors, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only Holders of
record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of outstanding Debentures have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the outstanding Debentures shall be computed as of
such record date.
ARTICLE 2
THE DEBENTURES; THE SERIES A DEBENTURES
SECTION 2.01 Issue of Debentures Generally.
The aggregate principal amount of the Debentures which may be
authenticated and delivered under this Indenture is limited to the sum of the
aggregate liquidation preference of the Preferred Securities and the aggregate
capital contribution of the General Partner to PECO Energy Capital.
The Debentures may be issued in one or more series as from time to
time shall be authorized by the Board of Directors.
The Debentures of each series and the Trustee's Certificate of
Authentication shall be substantially in the forms to be attached as exhibits to
the Indenture or supplemental indenture providing for their issuance, but in the
case of Debentures other than Series A Debentures, with such inclusions,
omissions and variations as are such letters, numbers or other marks of
identification or designation and such legends or endorsements printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Indenture, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto
<PAGE>
10
or with any rule or regulation of any securities exchange on which the
Debentures may be listed, or to conform to usage. Each Debenture shall be dated
the date of its authentication.
The several series of Debentures may differ from the Series A
Debentures, and as and between series, in respect of any or all of the following
matters:
(a) designation;
(b) date or dates of maturity, which may be serial;
(c) interest rate or method of determination of the interest rate and
whether Additional Interest will be payable;
(d) interest payment dates and the regular record dates therefor;
(e) Issue Date;
(f) authorized denominations;
(g) the place or places for the payment of principal (and premium, if
any) and for the payment of interest;
(h) limitation upon the aggregate principal amount of Debentures of
the series which may be issued;
(i) the optional and mandatory redemption provisions, if any;
(j) provisions, if any, for any sinking or analogous fund with
respect to the Debentures of such series; and
(k) any other provisions expressing or referring to the terms and
conditions upon which the Debentures of such series are to be
issued under this Indenture which are not in conflict with the
provisions of this Indenture;
in each case as determined and specified by the Board of Directors. The Trustee
shall not authenticate and deliver Debentures of any series (other than the
Series A Debentures) upon initial issue unless the terms and conditions of such
series shall have been set forth in a supplemental indenture entered into
between the Company and the Trustee as provided in Section 9.01.
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SECTION 2.02 Form of the Series A Debentures; Denominations.
The Series A Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A attached hereto.
The terms and provisions contained in the Series A Debentures, a form of which
is annexed hereto as Exhibit A, shall constitute, and are hereby expressly made,
a part of this Indenture. The Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
The Trustee shall authenticate and make available for delivery Series
A Debentures for original issue in the aggregate principal amount of
$206,185,567 (plus up to an additional $30,927,835 if the Underwriters for the
offering of the Series A Preferred Securities exercise their over-allotment
option to purchase additional Series A Preferred Securities) to evidence the
Company's obligation with respect to the loan from PECO Energy Capital, upon a
Board of Directors resolution and a written order of the Company signed by two
Officers of the Company, but without any further action by the Company. Such
order shall specify the amount of the Series A Debentures to be authenticated
and the date on which the original issue of Debentures is to be authenticated
and delivered. The aggregate principal amount of Series A Debentures outstanding
at any time may not exceed $237,113,402 except as provided in Section 2.09
hereof.
The Series A Debentures shall be issuable only in registered form
without coupons and only in denominations of $25.00 and any integral multiple
thereof.
SECTION 2.03 Payment of Principal and Interest.
The principal of and interest on the Debentures of any series, as well
as any premium thereon in the case of redemption thereof prior to maturity,
shall be payable in the coin or currency of the United States of America which
at the time is legal tender for public and private debts at the office of the
Paying Agent. Each Debenture shall be dated its Issue Date. Interest on the
Debentures shall be computed on the basis of a 360-day year composed of twelve
30-day months, and for any period shorter than a full monthly distribution
period, distributions will be computed on the basis of the actual number of days
elapsed in such period.
The interest on any Debenture which is payable and is punctually paid
or duly provided for, on any interest payment date for Debentures of that series
shall be paid to the person in whose name the Debenture is registered at the
close of business
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12
on the regular record date therefor. In the event that any Debenture of a
particular series or portion thereof is called for redemption, and the
redemption date is subsequent to the regular record date with respect to any
interest payment date and prior to such interest payment date, interest on such
Debenture will be paid upon presentation and surrender of such Debenture to the
Paying Agent.
SECTION 2.04 Execution and Authentication.
The Debentures shall be executed on behalf of the Company by its Chief
Executive Officer, its President or one of its Vice Presidents, under its
corporate seal imprinted or reproduced thereon attested by its Secretary or one
of its Assistant Secretaries. The signature of any such Officer on the
Debentures may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals
who were at any time the proper Officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
No Debenture shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Debenture a
certificate of authentication duly executed by the Trustee by manual signature
of an authorized officer, and such certificate upon any Debenture shall be
conclusive evidence, and the only evidence, that such Debenture has been duly
authenticated and made available for delivery hereunder.
The Trustee shall act as the initial authenticating agent. Thereafter,
the Trustee may appoint an authenticating agent. An authenticating agent may
authenticate Debentures whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as a Paying Agent to deal
with the Company or an Affiliate of the Company.
SECTION 2.05 Registrar and Paying Agent.
The Company shall maintain or cause to be maintained, within or
outside the Commonwealth of Pennsylvania, an office or agency where the
Debentures may be presented for registration of transfer or for exchange
("Registrar"), an office or agency where Debentures may be presented or
surrendered for purchase or payment ("Paying Agent"), and an office or agency
where notices
<PAGE>
13
and demands to or upon the Company in respect of the Debentures and this
Indenture may be served. The Registrar shall keep a register (the "Register") of
the Debentures and of their transfer and exchange. The Company may have one or
more co-Registrars and one or more additional Paying Agents. The term Paying
Agent includes any additional paying agent. The corporate trust office of the
Trustee at Reading, Pennsylvania, Attention: Corporate Trust Department, shall
initially be the Registrar and agent for service of notice or demands on the
Company, and Delaware Trust Company, Wilmington, Delaware, shall initially be
the Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-Registrar (if not the Company or the Trustee or an
affiliate of the Trustee). The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall give prompt written
notice to the Trustee of any change of location of such office or agency. If at
any time the Company shall fail to maintain or cause to be maintained any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 11.02 hereof. The
Company shall notify the Trustee of the name and address of any such agent. If
the Company fails to maintain a Registrar, Paying Agent or agent for service of
notices or demands, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.07 hereof. The Company
or any Affiliate of the Company may act as Paying Agent, Registrar or
co-Registrar or agent for service of notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in location of any such other office or agency.
SECTION 2.06 Paying Agent to Hold Money in Trust.
Except as otherwise provided herein, prior to each due date of the
principal and interest on any Debenture, the Company shall deposit with the
Paying Agent a sum of money sufficient to pay such principal, premium (if any)
and interest so becoming due. The Company shall require each Paying Agent (other
than the Trustee or the Company) to agree in writing that such Paying Agent
shall hold in trust for the benefit of Holders or the Trustee all money held by
the Paying Agent for the payment of principal and interest on the Debentures and
shall notify the
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14
Trustee of any default by the Company in making any such payment. At any time
during the continuance of any such default, the Paying Agent shall, upon the
request of the Trustee, forthwith pay to the Trustee all money so held in trust
and account for any money disbursed by it. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee and to account for any
money disbursed by it. Upon doing so, the Paying Agent shall have no further
liability for the money so paid over to the Trustee. If the Company, a
Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall
segregate the money held by it as Paying Agent and hold it as a separate trust
fund.
SECTION 2.07 Debentureholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Debentureholders. If the Trustee is not the Registrar, the Company shall cause
to be furnished to the Trustee on or before the record date for each interest
payment date and at such other times as the Trustee may request in writing,
within five Business Days of such request, a list, in such form as the Trustee
may reasonably require of the names and addresses of Debentureholders, provided
that during any deferral period, such information will be provided every six
months or upon request of the Trustee.
SECTION 2.08 Transfer and Exchange.
When Debentures are presented to the Registrar or a co-Registrar with
a request to register the transfer or to exchange them for an equal principal
amount of Debentures of the same series of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transactions are met. To permit registrations of transfer
and exchanges, the Company shall execute and the Trustee shall authenticate
Debentures, all at the Registrar's request.
Every Debenture presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by the Holder or his
attorney duly authorized in writing.
The Company shall not charge a service charge for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges that may be imposed in
connection with
<PAGE>
15
the transfer or exchange of the Debentures from the Debentureholder requesting
such transfer or exchange (other than any exchange of a temporary Debenture for
a definitive Debenture not involving any change in ownership).
The Company shall not be required to make, and the Registrar need not
register, transfers or exchanges of (a) any Debenture for a period beginning at
the opening of business 15 days before the mailing of a notice of redemption of
Debentures and ending at the close of business on the day of such mailing or (b)
any Debenture selected, called or being called for redemption, except, in the
case of any Debenture to be redeemed in part, the portion thereof not to be
redeemed.
SECTION 2.09 Replacement Debentures.
If (a) any mutilated Debenture is surrendered to the Company or the
Trustee, or (b) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Debenture, and there is
delivered to the Company and the Trustee such Debenture or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company or the Trustee that such Debenture has been acquired by a bona
fide purchaser, the Company shall execute in exchange for any such mutilated
Debenture or in lieu of any such destroyed, lost or stolen Debenture, a new
Debenture of like tenor and principal amount, bearing a number not
contemporaneously outstanding, and the Trustee shall authenticate and make such
new Debenture available for delivery.
In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, or is about to be redeemed by the
Company pursuant to Article 3 hereof, the Company in its discretion may, instead
of issuing a new Debenture, pay or purchase such Debenture, as the case may be.
Upon the issuance of any new Debentures under this Section 2.09, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Debenture issued pursuant to this Section 2.09 in lieu of
any mutilated, destroyed, lost or stolen Debenture shall constitute an original
additional contractual obligation of the Company whether or not the mutilated,
destroyed, lost or stolen Debenture shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and ratably with
any and all other Debentures duly issued hereunder.
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16
The provisions of this Section 2.09 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Debentures.
SECTION 2.10 Outstanding Debentures; Determinations of Holders' Action.
Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those mutilated, destroyed, lost or stolen Debentures
referred to in Section 2.09 hereof, those redeemed by the Company pursuant to
Article 3 hereof, and those described in this Section 2.10 as not outstanding. A
Debenture does not cease to be outstanding because the Company or a Subsidiary
or Affiliate thereof holds the Debenture; provided, however, that in determining
whether the Holders of the requisite principal amount of Debentures have given
or concurred in any request, demand, authorization, direction, notice, consent
or waiver hereunder, Debentures owned by the Company shall be disregarded and
deemed not to be outstanding.
Subject to the foregoing, only Debentures outstanding at the time of
such determination shall be considered in any such determination (including
determinations pursuant to Articles 3, 6 and 9).
If a Debenture is replaced pursuant to Section 2.09, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.
If the Paying Agent (other than the Company) holds, in accordance with
this Indenture, at maturity or on a Redemption Date, money sufficient to pay the
Debentures payable on that date, then immediately on the date of maturity or
such Redemption Date, as the case may be, such Debentures shall cease to be
outstanding, and interest, if any, on such Debentures shall cease to accrue.
SECTION 2.11 Temporary Debentures.
So long as PECO Energy Capital shall hold all of the Debentures, the
Company may execute temporary Debentures, and upon the Company's written
request, signed by two Officers of the Company, the Trustee shall authenticate
and make such temporary Debentures available for delivery. Temporary Debentures
shall be printed, lithographed, typewritten, mimeographed or otherwise
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17
produced, in any authorized denomination, substantially of the tenor of the
definitive Debentures in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the Officers of the
Company executing such Debentures may determine, as conclusively evidenced by
their execution of such Debentures.
After the preparation of definitive Debentures, the temporary
Debentures shall be exchangeable for definitive Debentures of the same series
upon surrender of the temporary Debentures at the office or agency of the
Company designated for such purpose pursuant to Section 2.05 hereof, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Debentures, the Company shall execute a like principal amount of
definitive Debentures of authorized denominations, and the Trustee, upon written
request of the Company signed by two Officers of the Company, shall authenticate
and make such Debentures available for delivery in exchange therefor. Until so
exchanged, the temporary Debentures shall in all respects be entitled to the
same benefits under this Indenture as definitive Debentures.
SECTION 2.12 Cancellation.
All Debentures surrendered for payment, redemption by the Company
pursuant to Article 3 hereof or registration of transfer or exchange shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by the Trustee. The Company may at any time
deliver to the Trustee for cancellation any Debentures previously authenticated
and made available for delivery hereunder which the Company may have acquired in
any manner whatsoever, and all Debentures so delivered shall be promptly
canceled by the Trustee. The Company may not reissue, or issue new Debentures to
replace Debentures it has paid or delivered to the Trustee for cancellation. No
Debentures shall be authenticated in lieu of or in exchange for any Debentures
canceled as provided in this Section 2.12, except as expressly permitted by this
Indenture. All canceled Debentures held by the Trustee shall be destroyed by the
Trustee, and the Trustee shall deliver a certificate of destruction to the
Company.
SECTION 2.13 Defaulted Interest.
If the Company defaults in a payment of interest on the Debentures, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, and such special record date, as used in this
Section 2.13 with
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18
respect to the payment of any defaulted interest, shall mean the 15th day next
preceding the date fixed by the Company for the payment of defaulted interest,
whether or not such day is a Business Day. At least 10 days before the
subsequent special record date, the Company shall mail to each Holder and to the
Trustee a notice that states the subsequent special record date, the payment
date and the amount of defaulted interest to be paid. The Company may also pay
defaulted interest in any other lawful manner.
ARTICLE 3
REDEMPTION
SECTION 3.01 Redemption; Notice to Trustee.
(a) The Series A Debentures are subject to redemption prior to
maturity as provided in the form thereof.
(b) The redemption terms for any additional series of Debentures shall
be as specified in the supplemental indenture creating such series of
Debentures; provided that each series of Debentures shall be subject to
mandatory redemption upon the dissolution of PECO Energy Capital.
(c) If any or all of the Debentures are to be redeemed pursuant to
paragraphs (a) or (b) above, the Company shall give notice by first class mail,
postage prepaid, to the Trustee within 45 days prior to the date of such
redemption. Any such notice of redemption shall state the date and price of
redemption.
SECTION 3.02 Selection of Debentures to be Redeemed.
If less than all the outstanding Debentures are to be redeemed at any
time, the Trustee shall select the Debentures to be redeemed on a pro rata
basis, by lot or any other method the Trustee considers fair and appropriate.
The Trustee shall make the selection at least 30 but not more than 60 days
before the Redemption Date from outstanding Debentures not previously called for
redemption. Provisions of this Indenture that apply to Debentures called for
redemption also apply to portions of Debentures called for redemption. The
Trustee shall notify the Company promptly of the Debentures or portions of
Debentures to be redeemed.
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19
SECTION 3.03 Notice of Redemption.
So long as PECO Energy Capital remains the sole Holder of the
Debentures, no notice of any redemption of Debentures will be required. In the
event and at such time that PECO Energy Capital ceases to be the sole Holder of
the Debentures, at least 30 days but not more than 60 days before a Redemption
Date, the Trustee shall mail or cause to be mailed a notice of redemption by
first-class mail, postage prepaid, to each Holder of Debentures to be redeemed
at the Holder's last address, as it appears on the Register. At the Company's
written request, the Trustee shall give the notice of redemption in the
Company's name and at its expense.
The notice shall identify the Debentures to be redeemed, the provision
of the Debentures or this Indenture pursuant to which the Debentures called for
redemption are being redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(5) if fewer than all the outstanding Debentures are to be redeemed,
the identification and principal amounts of the particular Debentures to be
redeemed and that, on and after the Redemption Date, upon surrender of such
Debentures, a new Debenture or Debentures in principal amount equal to the
unredeemed portion thereof will be issued; and
(6) that, unless the Company defaults in making such redemption
payment, interest will cease to accrue on Debentures called for redemption on
and after the Redemption Date.
SECTION 3.04 Effect of Notice of Redemption.
If notice of redemption is required as set forth in Section 3.03, and
after notice of redemption is given, Debentures called for redemption become due
and payable on the Redemption Date and at the Redemption Price. Upon the later
of the Redemption Date and the date such Debentures are surrendered to the
Paying Agent, such Debentures shall be paid at the Redemption Price, plus
accrued interest to the Redemption Date.
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SECTION 3.05 Deposit of Redemption Price.
On or prior to a Redemption Date, the Company shall deposit with the
Paying Agent (or if the Company or an Affiliate is the Paying Agent, shall
segregate and hold in trust or cause such Affiliate to segregate and hold in
trust) money sufficient to pay the Redemption Price of, and accrued interest on,
all Debentures to be redeemed on that date. The Paying Agent shall return to the
Company any money not required for the purpose stated herein.
SECTION 3.06 Debentures Redeemed in Part.
Upon surrender of a Debenture that is redeemed in part, the Trustee
shall authenticate for the Holder a new Debenture equal in principal amount to
the unredeemed portion of such Debenture.
ARTICLE 4
COVENANTS
SECTION 4.01 Payment of Debentures.
(a) The Company shall pay the principal of and interest (including
interest accruing on or after the filing of a petition in bankruptcy or
reorganization relating to the Company, whether or not a claim for post-filing
interest is allowed in such proceeding) on the Debentures on (or prior to) the
dates and in the manner provided in the Debentures or pursuant to this
Indenture. An installment of principal or interest shall be considered paid on
the applicable date due if on such date the Trustee or the Paying Agent holds,
in accordance with this Indenture, money sufficient to pay all of such
installment then due. The Company shall pay interest on overdue principal and
interest on overdue installments of interest (including interest accruing during
an Extension Period and/or on or after the filing of a petition in bankruptcy or
reorganization relating to the Company, whether or not a claim for post-filing
interest is allowed in such proceeding), to the extent lawful, at the rate per
annum borne by the Debentures, which interest on overdue interest shall accrue
from the date such amounts became overdue.
(b) Notwithstanding paragraph (a) of this Section 4.01 or any other
provision herein to the contrary, the Company shall have the right in its sole
and absolute discretion at any time and from time to time while the Debentures
are outstanding, so long as an Event of Default has not occurred and is
continuing, to extend the interest payment period for up to 60 consecutive
<PAGE>
21
months, provided that such extended interest period shall not extend beyond the
stated maturity date or redemption date of the Series A Subordinated Debentures,
and provided further that at the end of each Extension Period the Company shall
pay all interest then accrued and unpaid (together with interest thereon
compounded daily to the extent permitted by applicable law at the rate per annum
borne by the Debentures). Prior to the termination of an Extension Period, the
Company may shorten or may further extend the interest payment period, provided
that such Extension Period together with all such further extensions may not
exceed 60 months. The Company shall give the Trustee notice of its selection of
such extended or shortened interest payment period at least one Business Day
prior to the earlier of (i) the date selected by the Company to make the
interest payment or (ii) the date PECO Energy Capital is required to give notice
of the record or payment date of such related distribution to any national
securities exchange on which the Preferred Securities are then listed or other
applicable self-regulatory organization, but in any event not less than two
Business Days prior to such record date fixed by the Company for the payment of
such interest. The Company shall give or cause the Trustee to give such notice
of the Company's selection of such extended interest payment period to the
Holders.
SECTION 4.02 Prohibition Against Dividends, etc. During an Event of
Default or an Extension Period.
Neither the Company nor any Subsidiary shall declare or pay any
dividend on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its Capital Stock (other than dividends by a Wholly Owned
Subsidiary) during an Extension Period or if at such time there shall have
occurred any Default or Event of Default or if the Company shall be in default
with respect to its payment obligations under the Guarantee Agreement.
SECTION 4.03 SEC Reports.
The Company shall file with the Trustee, within 15 days after it files
them with the SEC, copies of its annual report and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) which the Company is required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company
is not subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Trustee such information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which are specified in
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22
Sections 13 or 15(d) of the Exchange Act. The Company shall also comply with the
provisions of Section 314(a) of the TIA.
SECTION 4.04 Compliance Certificates.
(a) The Company shall deliver to the Trustee within 90 days after the
end of each of the Company's fiscal years an Officer's Certificate, stating
whether or not the signer knows of any Default or Event of Default. Such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Company as to
his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 4.04(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If such Officer does know
of such a Default or Event of Default, the certificate shall describe any such
Default or Event of Default, and its status. Such Officer's Certificate need not
comply with Sections 11.04 and 11.05 hereof.
(b) The Company shall deliver to the Trustee any information
reasonably requested by the Trustee in connection with the compliance by the
Trustee or the Company with the TIA.
SECTION 4.05 Relationship with PECO Energy Capital.
The Company agrees (i) to maintain direct or indirect through a wholly
owned subsidiary 100% ownership of the General Partner and will cause the
General Partner to maintain 100% ownership of the general partnership interests
in PECO Energy Capital; (ii) to cause the General Partner to maintain a fair
market value net worth of at least 10% of the total contributions less
redemptions to PECO Energy Capital and to maintain general partner interests
representing 3% of all interests in the capital, income, gain, loss, deduction
and credit of PECO Energy Capital; (iii) to cause the General Partner to timely
perform all of its duties as General Partner of PECO Energy Capital (including
the duty to pay distributions on the Preferred Securities); and (iv) to use its
reasonable efforts to cause PECO Energy Capital to remain a limited partnership
and otherwise continue to be treated as a partnership for United States federal
income tax purposes.
SECTION 4.06 Further Instruments and Acts.
Upon request of the Trustee, the Company shall execute and deliver
such further instruments and do such further acts as
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may be reasonably necessary or proper to carry out more effectively the purposes
of this Indenture.
SECTION 4.07 Payments for Consents.
Neither the Company nor any Subsidiary shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Debentures for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this Indenture
or the Debentures unless such consideration is offered to be paid or agreed to
be paid to all Holders of the Debentures who so consent, waive or agree to amend
in the time frame set forth in the documents soliciting such consent, waiver or
agreement.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01 When the Company May Merge, Etc.
The Company may not consolidate with or merge with or into, or sell,
convey, transfer or lease all or substantially all of its assets (either in one
transaction or a series of transactions) to, any Person unless:
(1) the Person formed by or surviving such consolidation or merger or
to which such sale, conveyance, transfer or lease shall have been made (the
"Successor") if other than the Company, (a) is organized and existing under the
laws of the United States of America or any State thereof or the District of
Columbia, and (b) shall expressly assume by a supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Debentures and the Indenture;
(2) immediately prior to and after giving effect to such transaction
(and treating any Indebtedness which becomes an obligation of the Successor
Person or any Subsidiary as a result of such transaction as having been incurred
by such Person or such Subsidiary at the time of such transaction), no Default
or Event of Default shall have occurred and be continuing; and
(3) the Company, delivers to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, sale,
conveyance, transfer or lease and such supplemental indenture comply with this
Indenture.
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The Successor will be the successor to the Company, and will be
substituted for, and may exercise every right and power and become the obligor
on the Debentures with the same effect as if the Successor had been named as,
the Company herein but, in the case of a sale, conveyance, transfer or lease of
all or substantially all of the assets of the Company, the predecessor Company
will not be released from its obligation to pay the principal of, premium, if
any, and interest on the Debentures.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default.
An "Event of Default" occurs if one of the following shall have
occurred and be continuing:
(1) The Company defaults in the payment, when due and payable, of (a)
interest, including Additional Interest, on any Debenture and the default
continues for a period of 10 days; provided, that during an Extension Period,
failure to pay interest on the Debentures shall not constitute a Default or
Event of Default hereunder, or (b) the principal of, or premium, if any, on any
Debentures when the same becomes due and payable at maturity, acceleration, on
any Redemption Date, or otherwise;
(2) The Company defaults in the performance of, fails to comply with
any of its other covenants or agreements in the Debentures or this Indenture and
such failure continues for 60 days after receipt by the Company of a "Notice of
Default";
(3) The Company, pursuant to or within the meaning of any Bankruptcy
Law:
(a) commences a voluntary case or proceeding;
(b) consents to the entry of an order for relief against it in
an involuntary case or proceeding;
(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property, and such Custodian is
not discharged within 60 days;
(d) makes a general assignment for the benefit of its creditors;
or
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25
(e) admits in writing its inability to pay its debts generally
as they become due; or
(4) A court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company in an involuntary case or
proceeding;
(b) appoints a Custodian of the Company for all or substantially
all of its properties;
(c) orders the liquidation of the Company;
(d) and in each case the order or decree remains unstayed and in
effect for 60 days.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.
A Default under clause (2) above is not an Event of Default until the
Trustee notifies the Company or the Holders of at least a majority in aggregate
principal amount of the Debentures at the time outstanding or the Special
Representative notifies the Company and the Trustee, of the Default and the
Company does not cure such Default within the time specified in clause (2) above
after receipt of such notice. Any such notice must specify the Default, demand
that it be remedied and state that such notice is a "Notice of Default."
SECTION 6.02 Acceleration.
If any Event of Default other than an Event of Default under clauses
(3) or (4) occurs and is continuing, the Trustee, the Holders of not less than
25% in principal amount of the Debentures then outstanding or the Special
Representative may declare the principal of all such Debentures due and payable.
Upon such a declaration, such principal and interest shall be due and payable
immediately.
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If an Event of Default specified in clause (3) or (4) with respect to
the Company occurs, the principal of and interest on all the Debentures shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Debentureholders.
The Special Representative or holders of a majority in aggregate
principal amount of the Debentures at the time outstanding by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may, in
its own name or as trustee of an express trust, institute, pursue and prosecute
any proceeding, including, without limitation, any action at law or suit in
equity or other judicial or administrative proceeding to collect the payment of
principal of, premium, if any, or interest on the Debentures, to enforce the
performance of any provision of the Debentures or this Indenture or to obtain
any other available remedy.
The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of the Debentures in the proceeding. A
delay or omission by the Trustee, the Special Representative or any
Debentureholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of, or
acquiescence in, the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative.
SECTION 6.04 Waiver of Past Defaults.
The Special Representative or the Holders of 66 2/3% in aggregate
principal amount of the Debentures at the time outstanding, by notice to the
Trustee, the Company and PECO Energy Capital, may waive an existing Default or
Event of Default and its consequences. When a Default is waived, it is deemed
cured and shall cease to exist, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right.
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27
SECTION 6.05 Control by Majority or the Special Representative.
The Holders of a majority in aggregate principal amount of the
Debentures then outstanding or the Special Representative may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture or that the Trustee determines in good faith is unduly prejudicial to
the rights of other Debentureholders or would involve the Trustee in personal
liability. The Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, including withholding notice to
the Holders of the Debentures of any series of continuing default (except in the
payment of the principal (other than any mandatory sinking fund payment) of (or
premium, if any) or interest on any Debentures of such series) if the Trustee
considers it in the interest of the holders of such series of Debentures to do
so.
SECTION 6.06 Limitation on Suits.
Except as provided in Section 6.07 hereof, the Special Representative
may not pursue any remedy with respect to this Indenture or the Debentures
unless:
(1) the Holders or the Special Representative gives to the Trustee
written notice stating that an Event of Default is continuing;
(2) the Holders or the Special Representative provides to the Trustee
reasonable security and indemnity against any loss, liability or expense
satisfactory to the Trustee;
(3) the Trustee does not comply with the request within 60 days after
receipt of the notice, the request and the offer of security and indemnity; and
SECTION 6.07 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of the principal amount of or interest on the
Debentures held by such Holder, on or after the respective due dates expressed
in the Debentures (in the case of interest, as the same may be extended pursuant
to Section 4.01(b)) or any Redemption Date, or to bring suit for the enforcement
of any such payment on or after such respective dates shall not be impaired or
affected adversely without the consent of each such Holder.
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SECTION 6.08 Collection Suit by the Trustee.
If an Event of Default described in Section 6.01(1) hereof occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company or any obligor on the Debentures for the
whole amount owing with respect to the Debentures and the amounts provided for
in Section 6.07 hereof.
SECTION 6.09 The Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or its properties or assets, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise:
(1) to file and prove a claim for the whole amount of the principal
amount, premium, if any, and interest on the Debentures and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding; and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay the Trustee any amount
due it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
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29
SECTION 6.10 Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07 hereof;
SECOND: to Debentureholders for amounts due and unpaid on the
Debentures for the principal amount, Redemption Price or
interest, if any, as the case may be, ratably, without
preference or priority of any kind, according to such
amounts due and payable on the Debentures; and
THIRD: the balance, if any, to the Company.
The Trustee may fix a record date and payment date for any payment to
Debentureholders pursuant to this Section 6.10.
SECTION 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant (other than the Trustee) in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
the suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section 6.11 does not apply to a suit
by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof or a suit by
Holders of more than 10% in aggregate principal amount of the Debentures at the
time outstanding or a suit by the Special Representative.
SECTION 6.12 Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, that would
prohibit or forgive the Company from paying all or any portion of the principal
or premium, if any, or interest on the Debentures as contemplated herein or
affect the covenants or the performance by the Company of its obligations under
this Indenture; and the Company (to the extent that it may lawfully do
<PAGE>
30
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
ARTICLE 7
THE TRUSTEE
SECTION 7.01 Duties of the Trustee.
(1) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
(2) Except during the continuance of an Event of Default, (a) the
Trustee need perform only those duties that are specifically set forth in this
Indenture and no others; and (b) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the Trustee
shall examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(3) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(a) this paragraph (3) does not limit the effect of paragraph
(2) of this Section 7.01;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(c) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
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(4) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (1), (2), (3) and (5) of this Section 7.01 and
Section 7.02.
(5) The Trustee may refuse to perform any duty or exercise any right
or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives security and indemnity reasonably satisfactory to
it against any loss, liability or expense.
(6) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall not be liable for interest on any money held by it hereunder.
SECTION 7.02 Rights of the Trustee.
(1) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document;
(2) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate and, if appropriate, an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officer's Certificate and Opinion of Counsel;
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care;
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or within
its rights or powers;
(5) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon; and
(6) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders or Special Representative pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security and indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction.
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32
SECTION 7.03 Individual Rights of the Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Debentures and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee. Any Paying
Agent, Registrar or co-registrar may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11 hereof.
SECTION 7.04 The Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Debentures, it shall not be accountable for the Company's
use of the proceeds from the Debentures, and it shall not be responsible for any
statement in this Indenture or the Debentures or any report or certificate
issued by the Company hereunder or any registration statement relating to the
Debentures (other than the Trustee's certificate of authentication), or the
determination as to which beneficial owners are entitled to receive any notices
hereunder.
SECTION 7.05 Notice of Defaults.
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Debentureholder, as their names and
addresses appear on the Debenture Register, notice of the Default within 90 days
after it becomes known to the Trustee unless such Default shall have been cured
or waived. Except in the case of a Default described in Section 6.01(1) hereof,
the Trustee may withhold such notice if and so long as a committee of Trust
Officers in good faith determines that the withholding of such notice is in the
interests of Debentureholders. The second sentence of this Section 7.05 shall be
in lieu of the proviso to TIA Section 315(b). Said proviso is hereby expressly
excluded from this Indenture, as permitted by the TIA.
SECTION 7.06 Reports by Trustee to Holders.
Within 60 days after each May 31, beginning with the May 31 next
following the date of this Indenture, the Trustee shall mail to each
Debentureholder, and such other holders that have submitted their names to the
Trustee for such purpose, a brief report dated as of such May 31 in accordance
with and to the extent required under TIA Section 313.
A copy of each report at the time of its mailing to Debentureholders
shall be filed with the Company, the SEC and
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each securities exchange on which the Debentures are listed. The Company agrees
to promptly notify the Trustee whenever the Debentures become listed on any
securities exchange and of any listing thereof.
SECTION 7.07 Compensation and Indemnity.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as shall
be agreed in writing between the Company and the Trustee for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, and advances of its agents and counsel),
including all reasonable expenses and advances incurred or made by the Trustee
in connection with any Event of Default or any membership on any creditors'
committee, except any such expense or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee, its officers, directors and
shareholders, for, and to hold it harmless against, any and all loss, liability
or expense, incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of this trust, including
the costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder.
Before, after or during an Event of Default, the Trustee shall have a
claim and lien prior to the Debentures as to all property and funds held by it
hereunder for any amount owing it or any predecessor Trustee pursuant to this
Section 7.07, except with respect to funds held by the Trustee or any Paying
Agent in trust for the payment of principal of, premium, if any, or interest on
particular Debentures pursuant to Section 2.06 or Section 8.01.
The Company's payment obligations pursuant to this Section 7.07 are
not subject to Article 10 of this Indenture and shall survive the discharge of
this Indenture. When the Trustee renders services or incurs expenses after the
occurrence of a Default specified in Section 6.01 hereof, the compensation for
services and expenses are intended to constitute expenses of administration
under any Bankruptcy Law.
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SECTION 7.08 Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing at least
30 days prior to the date of the proposed resignation; provided, however, no
such resignation shall be effective until a successor Trustee has accepted its
appointment pursuant to this Section 7.08. The Special Representative or the
Holders of a majority in aggregate principal amount of the Debentures at the
time outstanding, may remove the Trustee by so notifying the Trustee in writing
and may appoint a successor Trustee, which shall be subject to the consent of
the Company unless an Event of Default has occurred and is continuing. The
Trustee shall resign if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or public officer takes charge of the Trustee or its
property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the
retiring Trustee and to the Company. Thereupon the resignation or removal of the
retiring Trustee shall become effective, and the successor Trustee shall have
all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Debentureholders.
Subject to payment of all amounts owing to the Trustee under Section 7.07 hereof
and subject further to its lien under Section 7.07, the retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee.
If a successor Trustee does not take office within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company, the Special
Representative or the Holders of a majority in aggregate principal amount of the
Debentures at the time outstanding, may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Debentureholder may petition any court of competent jurisdiction for its removal
and the appointment of a successor Trustee.
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SECTION 7.09 Successor Trustee by Merger.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all its corporate trust business or assets
(including this Trusteeship) to another corporation, the resulting, surviving or
transferee corporation without any further act shall be the successor Trustee.
SECTION 7.10 Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements of TIA
Sections 310(a)(1) and 310(a)(2). The Trustee (or any Affiliate thereof which
has unconditionally guaranteed the obligations of the Trustee hereunder) shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b). In determining whether the Trustee has conflicting interests
as defined in TIA Section 310(b)(1), the provisions contained in the proviso to
TIA Section 310(b)(1) shall be deemed incorporated herein.
SECTION 7.11 Preferential Collection of Claims Against the Company.
If and when the Trustee shall be or become a creditor of the Company,
the Trustee shall be subject to the provisions of the TIA regarding the
collection of claims against the Company.
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE;
DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS
SECTION 8.01 Satisfaction and Discharge of Indenture.
The Company shall be deemed to have paid and discharged the entire
indebtedness on any series of the Debentures outstanding on the date the Company
has irrevocably deposited or caused to be irrevocably deposited with the Trustee
or any Paying Agent as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit the Holders (1) cash in an amount, or
(2) U.S. Government Obligations, maturing as to principal and interest at such
times and in such amounts as will ensure the availability of cash, or (3) a
combination thereof, sufficient to pay the principal of, premium, if any, and
interest on, all Debentures then outstanding, and on such date; the provisions
of this Indenture with respect to the Debentures shall no longer be in effect
(except as to (1) the rights of
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registration of transfer, substitution and exchange of Debentures, (2) the
replacement of apparently mutilated, defaced, destroyed, lost or stolen
Debentures, (3) the rights of the Holders to receive payments of principal
thereof and interest thereon, (4) the rights of the Holders as beneficiaries
hereof with respect to the property so deposited with the Trustee payable to all
or any of them, (5) the obligation of the Company to maintain an office or
agency for payments on and registration of transfer of the Debentures, and (6)
the rights, obligations and immunities of the Trustee hereunder); and the
Trustee shall, at the request and expense of the Company, execute proper
instruments acknowledging the same; provided that if the Company deposits U.S.
Government Obligations with the Trustee:
(A) no Default or Event of Default with respect to the Debentures has
occurred and is continuing on the date of such deposit or occurs as a
result of such deposit;
(B) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
relating to the defeasance contemplated by this provision have been
complied with; and
(C) the Company has delivered to the Trustee (i) either a private
Internal Revenue Service ruling or an Opinion of Counsel based on a ruling
of the Internal Revenue Service or other change in Federal income tax law
to the effect that the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and
in the manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, and (ii) an Opinion of
Counsel to the effect that (A) the deposit shall not result in the Company,
the Trustee or the trust being deemed to be an "investment company" under
the Investment Company Act of 1940, as amended, and (B) such deposit
creates a valid trust in which such Holders of the Debentures have the sole
beneficial ownership interest or that such Holders of the Debentures have a
nonavoidable first priority security interest in such trust.
SECTION 8.02 Application by Trustee of Funds Deposited for
Payment of Debentures.
Subject to Section 8.04, and Article 10 of this Indenture, all moneys
deposited with the Trustee pursuant to Section 8.01 hereof shall be held in
trust and applied by it to the payment, either directly or through any Paying
Agent
<PAGE>
37
(including the Company acting as its own Paying Agent), to the Holders for the
payment or redemption of which such moneys have been deposited with the Trustee,
of all sums due and to become due thereon for principal and interest; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.03 Repayment of Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under this Indenture shall, upon demand
of the Company, be repaid to it or paid to the Trustee, and thereupon such
Paying Agent shall be released from all further liability with respect to such
moneys.
SECTION 8.04 Return of Moneys Held by the Trustee and Paying Agent
Unclaimed for Three Years.
Any moneys deposited with or paid to the Trustee or any Paying Agent
for the payment of the principal, premium, if any, or interest on any Debenture
and not applied but remaining unclaimed for three years after the date when such
principal, premium, if any, or interest shall have become due and payable shall
unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, be repaid to the Company by the Trustee or
such Paying Agent, and the Holder of such Debenture shall, unless otherwise
required by mandatory provisions of applicable escheat or abandoned or unclaimed
property laws, thereafter look only to the Company for any payment which such
Holder may be entitled to collect, and all liability of the Trustee or any
Paying Agent with respect to such moneys shall thereupon cease.
ARTICLE 9
AMENDMENTS
SECTION 9.01 Without Consent of Holders.
From time to time, when authorized by a resolution of the Board of
Directors, the Company and the Trustee, without notice to or the consent of any
holders of the Debentures or their Special Representative issued hereunder, may
amend or supplement this Indenture or the Debentures:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article 5 hereof;
<PAGE>
37
(3) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures;
(4) to make any other change that does not adversely affect the rights
of any Debentureholder; or
(5) to comply with any requirement of the SEC in connection with the
qualification of this Indenture under the TIA; and
(6) to set forth the terms and conditions, which shall not be
inconsistent with this Indenture, of the series of Debentures (other than the
Series A Debentures) that are to be issued hereunder and the form of Debentures
of such series.
SECTION 9.02 With Consent of Holders.
With written consent of the Special Representative or the Holders of
at least 66 2/3% in aggregate principal amount of the series of Debentures at
the time outstanding, the Company and the Trustee may amend this Indenture or
the Debentures or may waive future compliance by the Company with any provisions
of this Indenture or the Debentures. However, without the consent of each
Debentureholder affected, such an amendment or waiver may not:
(1) reduce the principal amount of the Debentures the Holders of which
must consent to an amendment of the Indenture or a waiver;
(2) change the Stated Maturity of the principal of, or the interest or
rate of interest on the Debentures, change adversely to the Holders the
redemption provisions of Article 3 hereof, or impair the right to institute suit
for the enforcement of any such payment or make any Debenture payable in money
or securities other than that stated in the Debenture;
(3) make any change in Article 10 hereof that adversely affects the
rights of the Holders of the Debentures or any change to any other section
hereof that adversely affects their rights under Article 10 hereof;
(4) waive a Default in the payment of the principal of, premium, if
any, or interest on, any Debenture; or
(5) change Section 6.07 hereof.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of
<PAGE>
39
any proposed amendment, but it shall be sufficient if such consent approves the
substance thereof.
If certain Holders agree to defer or waive certain obligations of the
Company hereunder with respect to Debentures held by them, such deferral or
waiver shall not affect the rights of any other Holder to receive the payment or
performance required hereunder in a timely manner.
After an amendment or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Special Representative and to each
Holder a notice briefly describing the amendment or waiver. Any failure of the
Company to mail such notices, or any defect therein, shall not, however, in any
way impair or affect the validity of such amendment or waiver.
SECTION 9.03 Compliance with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article 9 shall
comply with the TIA.
SECTION 9.04 Revocation and Effect Of Consents, Waivers and Actions.
Until an amendment, waiver or other action by Holders becomes
effective, a consent to it or any other action by a Holder of a Debenture
hereunder is a continuing consent by the Holder and every subsequent Holder of
that Debenture or portion of the Debenture that evidences the same obligation as
the consenting Holder's Debenture, even if notation of the consent, waiver or
action is not made on the Debenture. However, any such Holder or subsequent
Holder may revoke the consent, waiver or action as to such Holder's Debenture or
portion of the Debenture if the Trustee receives the notice of revocation before
the consent of the requisite aggregate principal amount of the Debentures then
outstanding has been obtained and not revoked. After an amendment, waiver or
action becomes effective, it shall bind every Debentureholder, except as
provided in Section 9.02 hereof.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then, notwithstanding the first two sentences
of the immediately preceding paragraph, those Persons who were Holders at such
record date or their duly designated proxies, and only those Persons, shall be
entitled to consent to such amendment, supplement or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date.
<PAGE>
40
SECTION 9.05 Notation on or Exchange of Debentures.
Debentures authenticated and made available for delivery after the
execution of any supplemental indenture pursuant to this Article 9 may, and
shall, if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Debentures so modified as to conform, in the
opinion of the Trustee and the Board of Directors, to any such supplemental
indenture may be prepared and executed by the Company and authenticated and made
available for delivery by the Trustee in exchange for outstanding Debentures.
SECTION 9.06 Trustee to Sign Supplemental Indentures.
The Trustee shall sign any supplemental indenture authorized pursuant
to this Article 9 if the supplemental indenture does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing such amendment the Trustee shall
be entitled to receive, and shall be fully protected in relying upon, an
Officer's Certificate and Opinion of Counsel stating that such supplemental
indenture is authorized or permitted by this Indenture.
SECTION 9.07 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article 9,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes and every Holder
of Debentures theretofore or thereafter authenticated and made available for
delivery hereunder shall be bound thereby.
ARTICLE 10
SUBORDINATION
SECTION 10.01 Debentures Subordinated to Senior Indebtedness.
Notwithstanding the provisions of Section 6.01 hereof or any other
provision herein or in the Debentures, the Company and the Trustee or Holder by
his acceptance thereof (a) covenants and agrees, that all payments by the
Company of the principal of, premium, if any, and interest on the Debentures
shall be subordinated in accordance with the provisions of this Article 10 to
the prior payment in full, in cash or cash equivalents, of all
<PAGE>
41
amounts payable on, under or in connection with Senior Indebtedness, and (b)
acknowledges that holders of Senior Indebtedness are or shall be relying on this
Article 10.
SECTION 10.02 Priority and Payment of Proceeds in Certain Events;
Remedies Standstill.
(a) Upon any payment or distribution of assets or securities of the
Company, as the case may be, of any kind or character, whether in cash, property
or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary,
or in bankruptcy, insolvency, receivership or other proceedings, all amounts
payable on, under or in connection with Senior Indebtedness (including any
interest accruing on such Senior Indebtedness subsequent to the commencement of
a bankruptcy, insolvency or similar proceeding) shall first be paid in full in
cash, or payment provided for in cash or cash equivalents, before the Holders or
the Trustee on behalf of the Holders shall be entitled to receive from the
Company any payment of principal of or interest on or any other amounts in
respect of the Debentures or distribution of any assets or securities.
(b) No direct or indirect payment by or on behalf of the Company of
principal of or interest on the Debentures whether pursuant to the terms of the
Debentures or upon acceleration or otherwise shall be made if, at the time of
such payment there exists (i) a default in the payment of all or any portion of
any Senior Indebtedness (and the Trustee has received written notice thereof
from the Company, one or more holders of Senior Indebtedness or from any
trustee, representative or agent therefor), or (ii) any other default affecting
Senior Indebtedness permitting its acceleration, as the result of which the
maturity of Senior Indebtedness has been accelerated, and the Trustee has
received written notice from any trustee, representative or agent for the
holders of the Senior Indebtedness or the holders of at least a majority in
principal amount of the Senior Indebtedness then outstanding of such default and
acceleration, and such default shall not have been cured or waived by or on
behalf of the holders of such Senior Indebtedness.
(c) If, notwithstanding the foregoing provision prohibiting such
payment or distribution, the Trustee or any Holder shall have received any
payment on account of the principal of or interest on the Debentures (other than
as permitted by subsections (a) and (b) of this Section 10.02) when such payment
is prohibited by this Section 10.02 and before all amounts payable on, under or
in connection with Senior Indebtedness are paid in full in cash or cash
equivalents, then
<PAGE>
42
and in such event (subject to the provisions of Section 10.08) such payment or
distribution shall be received and held in trust for the holders of Senior
Indebtedness and shall be paid over or delivered first to the holders of the
Senior Indebtedness remaining unpaid to the extent necessary to pay such Senior
Indebtedness in full in cash or cash equivalents.
Upon any payment or distribution of assets or securities referred to
in this Article 10, the Trustee and the Holders shall be entitled to rely upon
any order or decree of a court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
and upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making any such payment or distribution,
delivered to the Trustee for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.
SECTION 10.03 Payments which May Be Made Prior to Notice.
Nothing in this Article 10 or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Section 10.02
hereof, from making payments of principal of and interest on the Debentures or
from depositing with the Trustee any monies for such payments, or (ii) the
application by the Trustee of any monies deposited with it for the purpose of
making such payments of principal of and interest on the Debentures, to the
Holders entitled thereto, unless at least one day prior to the date when such
payment would otherwise (except for the prohibitions contained in Section 10.02
hereof) become due and payable, the Trustee shall have received the written
notice provided for in Section 10.02(b)(ii) hereof.
SECTION 10.04 Rights of Holders of Senior Indebtedness Not to Be Impaired.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time or in any way be
prejudiced or impaired by any act or failure to act in good faith by any such
holder, or by any noncompliance by the Company with the terms and provisions and
covenants herein regardless of any knowledge thereof any such holder may have or
otherwise be charged with.
<PAGE>
43
The provisions of this Article 10 are intended to be for the benefit
of, and shall be enforceable directly by, the holders of Senior Indebtedness.
Notwithstanding anything to the contrary in this Article 10, to the
extent any Holders or the Trustee have paid over or delivered to any holder of
Senior Indebtedness any payment or distribution received on account of the
principal of, or interest on the Debentures to which any other holder of Senior
Indebtedness shall be entitled to share in accordance with Section 10.02 hereof,
no holder of Senior Indebtedness shall have a claim or right against any Holders
or the Trustee with respect to any such payment or distribution or as a result
of the failure to make payments or distributions to such other holder of Senior
Indebtedness.
SECTION 10.05 Trustee May Take Action to Effectuate Subordination.
Each Holder by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate, as between the holders of Senior Indebtedness and such Holders, the
subordination as provided in this Article 10 and appoints the Trustee his
attorney-in-fact for any and all such purposes.
SECTION 10.06 Subrogation.
Upon the payment in full, in cash or cash equivalents, of all Senior
Indebtedness, any Holder shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets of the
Company made on such Senior Indebtedness until the Debentures shall be paid in
full; and for the purposes of such subrogation, no payments or distributions to
holders of such Senior Indebtedness of any cash, property or securities to which
such Holders of the Debentures would be entitled except for this Article 10, and
no payment pursuant to this Article 10 to holders of such Senior Indebtedness by
such Holders of the Debentures, shall, as between the Company, its creditors
other than holders of such Senior Indebtedness and such Holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness, it being understood that the provisions of this Article 10
are solely for the purpose of defining the relative rights of the holders of
such Senior Indebtedness, on the one hand, and such Holders of the Debentures,
on the other hand.
If any payment or distribution to which such Holders of the Debentures
would otherwise have been entitled but for the
<PAGE>
44
provisions of this Article 10 shall have been applied, pursuant to this Article
10, to the payment of all Senior Indebtedness, then and in such case, such
Holders of the Debentures shall be entitled to receive from the holders of such
Senior Indebtedness at the time outstanding any payments or distributions
received by such holders of Senior Indebtedness in excess of the amount
sufficient to pay, in cash or cash equivalents, all such Senior Indebtedness in
full.
SECTION 10.07 Obligations of Company Unconditional; Reinstatement.
Nothing in this Article 10, or elsewhere in this Indenture or in any
Debenture, is intended to or shall impair, as between the Company and Holders of
the Debentures, the obligations of the Company, which are absolute and
unconditional, to pay to such Holders the principal of, and interest on, the
Debentures as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of such
Holders of the Debentures and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the
Trustee, the Special Representative or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture, subject
to the rights, if any, under this Article 10 of the holders of such Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
The failure to make a scheduled payment of principal of, or interest
on, the Debentures by reason of Section 10.02 shall not be construed as
preventing the occurrence of an Event of Default under Section 6.01 hereof;
provided, however, that if (i) the conditions preventing the making of such
payment no longer exist, and (ii) such Holders of the Debentures are made whole
with respect to such omitted payments, the Event of Default relating thereto
(including any failure to pay any accelerated amounts) shall be automatically
waived, and the provisions of the Indenture shall be reinstated as if no such
Event of Default had occurred.
SECTION 10.08 Trustee Entitled to Assume Payments Not Prohibited in Absence
of Notice.
The Trustee or Paying Agent shall not be charged with the knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee or Paying Agent, unless and until the Trustee or Paying Agent
shall have received written notice thereof from the Company or one or more
holders of
<PAGE>
45
Senior Indebtedness or from any trustee or agent therefor or unless the Trustee
or Paying Agent otherwise had actual knowledge thereof; and, prior to the
receipt of any such written notice or actual knowledge, the Trustee or Paying
Agent may conclusively assume that no such facts exist.
Unless at least one day prior to the date when by the terms of this
Indenture any monies are to be deposited by the Company with the Trustee or any
Paying Agent for any purpose (including, without limitation, the payment of the
principal or the interest on any Debenture), the Trustee or Paying Agent shall,
except where no notice is necessary or where notice is deemed given in Sections
10.02 and 10.03 hereof, have received with respect to such monies the notice
provided for in the preceding sentence, the Trustee or Paying Agent shall have
full power and authority to receive and apply such monies to the purpose for
which they were received. Neither of them shall be affected by any notice to the
contrary, which may be received by either on or after such date. The foregoing
shall not apply to the Paying Agent if the Company is acting as Paying Agent.
Nothing in this Section 10.08 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by Section 10.02 hereof. The
Trustee or Paying Agent shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of such
Senior Indebtedness (or a trustee on behalf of, or other representative of, such
holder) to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder. The
Trustee shall not be deemed to have any duty to the holders of Senior
Indebtedness.
SECTION 10.09 Right of Trustee to Hold Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all of the
rights set forth in this Article 10 in respect of any Senior Indebtedness at any
time held by them to the same extent as any other holder of such Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee or any Paying Agent of any of its rights as such holder.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by operation of subsection (c)
<PAGE>
46
of Section 318 of the TIA, the imposed duties shall control. The provisions of
Sections 310 to 317, inclusive, of the TIA that impose duties on any Person
(including provisions automatically deemed included in an indenture unless the
indenture provides that such provisions are excluded) are a part of and govern
this Indenture, except as, and to the extent, they are expressly excluded from
this Indenture, as permitted by the TIA.
SECTION 11.02 Notices.
Any notice or communication shall be in writing and delivered in
person or mailed by first-class mail, postage prepaid, addressed as follows:
if to the Company:
PECO Energy Company
2301 Market Street
P.O. Box 8699
Philadelphia, Pennsylvania 19101
Attention: Todd D. Cutler, Esq.
Facsimile No.: (215) 841-5743
if to the Trustee:
Meridian Trust Company
35 North 6th Street
P.O. Box 15111
Reading, Pennsylvania 19612-5111
Attn: Corporate Trust Administration
The Company or the Trustee, by giving notice to the other, may
designate additional or different addresses for subsequent notices of
communications. The Company shall notify the holder, if any, of Senior
Indebtedness of any such additional or different addresses of which the Company
receives notice from the Trustee.
Any notice or communication given to a Debentureholder other than PECO
Energy Capital shall be mailed to the Debentureholder at the Debentureholder's
address as it appears on the Register of the Registrar and shall be sufficiently
given if mailed within the time prescribed.
Failure to mail a notice or communication to a Debentureholder or any
defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressee.
<PAGE>
47
If the Company mails a notice or communication to the
Debentureholders, it shall mail a copy to the Trustee and each Registrar, Paying
Agent or co-Registrar.
SECTION 11.03 Communication by Holders with Other Holders.
Debentureholders may communicate, pursuant to TIA Section
312(b), with other Debentureholders with respect to their rights under this
Indenture or the Debentures. The Company, the Trustee, the Registrar, the Paying
Agent and anyone else shall have the protection of TIA Section 312(c).
SECTION 11.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officer's Certificate (complying with Section 11.05 hereof)
stating that, in the opinion of such Officer, all conditions precedent to the
taking of such action have been complied with; and
(2) if appropriate, an Opinion of Counsel (complying with Section
11.05 hereof) stating that, in the opinion of such counsel, all such conditions
precedent to the taking of such action have been complied with.
SECTION 11.05 Statements Required in Certificate or Opinion.
Each Officer's Certificate and Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Indenture shall
include:
(1) a statement that each Person making such Officer's Certificate or
Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such Officer's
Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to
<PAGE>
48
whether or not such covenant or condition has been complied with; and
(4) a statement that, in the opinion of such Person, such covenant or
condition has been complied with; provided, however, that with respect to
matters of fact not involving any legal conclusion, an Opinion of Counsel may
rely on an Officer's Certificate or certificates of public officials.
SECTION 11.06 Severability Clause.
If any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.07 Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Debentureholders. The Registrar and Paying Agent may make reasonable rules for
their functions.
SECTION 11.08 Legal Holidays.
A "Legal Holiday" is any day other than a Business Day. If any
specified date (including a date for giving notice) is a Legal Holiday, the
action to be taken on such date shall be taken on the next succeeding day that
is not a Legal Holiday, and if such action is a payment in respect of the
Debentures, no principal or interest installment shall accrue for the
intervening period; except that if any interest payment is due on a Legal
Holiday and the next succeeding day is in the next succeeding calendar year,
such payment shall be made on the Business Day immediately preceding such Legal
Holiday.
SECTION 11.09 Governing Law.
This Indenture and the Debentures shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania as applied to
contracts made and performed within the Commonwealth of Pennsylvania, without
regard to its principles of conflicts of laws.
<PAGE>
49
SECTION 11.10 No Recourse Against Others.
No director, officer, employee or stockholder, as such, of the Company
shall have any liability for any obligations of the Company under the Debentures
or this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Debenture, each Debentureholder
shall waive and release all such liability. The waiver and release shall be part
of the consideration for the issue of the Debentures.
SECTION 11.11 Successors.
All agreements of the Company in this Indenture and the Debentures
shall bind its successors and assigns. All agreements of the Trustee in this
Indenture shall bind its successors and assigns.
SECTION 11.12 Multiple Original Copies of this Indenture.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement. Any signed copy shall be sufficient proof of this Indenture.
SECTION 11.13 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.14 Table of Contents; Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 11.15 Benefits of the Indenture.
Except as expressly provided in Article 10 hereof, nothing in this
Indenture or in the Debentures, express or implied, shall give to any person,
other than the parties hereto and their successors hereunder, the Holders and
the Special Representative, any benefit or any legal or equitable right, remedy
or claim under this Indenture.
<PAGE>
50
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Indenture on behalf of the respective parties hereto as of the
date first above written.
PECO ENERGY COMPANY
By: _______________________________
Name: _____________________________
Title: ____________________________
MERIDIAN TRUST COMPANY,
as Trustee
By: _______________________________
Name: _____________________________
Title: ____________________________
PECO Energy Capital, L.P.
By its General Partner,
PECO Energy Capital Corp.
By _____________________
Solely for the purposes stated
in the recitals hereto.
<PAGE>
A-1
Exhibit A
9% Deferrable Interest Subordinated Debentures,
Series A due 2043
No. 1
PECO Energy Company, a Pennsylvania corporation (the "Company"), which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to PECO Energy Capital, L.P. or
registered assigns, the principal sum of _______________________________________
_________________________________________ Dollars on July 27, 2043, and to pay
interest on said principal sum from July 27, 1994 or from the most recent
interest payment date (each such date, an "Interest Payment Date") to which
interest has been paid or duly provided for, monthly in arrears on the last day
of each calendar month of each year commencing August 1, 1994 at the rate of 9%
per annum plus Additional Interest, if any, until the principal hereof shall
have become due and payable, and on any overdue principal and premium, if any,
and (to the extent that payment of such interest is enforceable under applicable
law) on any overdue installment of interest at the same rate per annum. The
amount of interest payable on any Interest Payment Date shall be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which interest is payable on the Series A Debentures is not a Business Day, then
payment of interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date. The
interest installment so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture, be paid to the
person in whose name this Debenture is registered at the close of business on
the regular record date for such interest installment, which shall be the close
of business on the Business Day next preceding such Interest Payment Date. Any
such interest installment not punctually paid or duly provided for shall
forthwith cease to be payable to the registered holders on such regular record
date, and may be paid to the person in whose name this Debenture is registered
at the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered holders of this series of Debentures not less than 10 days prior to
such special record date, as more fully provided in the Indenture hereinafter
referred to. The principal of (and premium, if any) and the interest on this
Debenture shall be payable at the office
<PAGE>
A-2
or agency of the Company maintained for that purpose in Wilmington, Delaware in
any coin or currency of the United States of America which at the time of
payment is legal tender for payment of public and private debts; provided
however, that payment of interest may be made at the option of the Company by
check mailed to the registered holder at such address as shall appear in the
Debenture Register. Notwithstanding the foregoing, so long as the holder of this
Debenture is PECO Energy Capital, the payment of the principal of (and premium,
if any) and interest (including Additional Interest, if any) in this Debenture
will be made at such place and to such account as may be designated by PECO
Energy Capital.
The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes. Each Holder hereof, by his acceptance hereof, hereby
waives all notice of the acceptance of the subordination provisions contained
herein and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such Holder upon
said provisions.
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series A Debentures"), specified
in the Indenture, limited in aggregate principal amount as specified in the
Indenture, issued under and pursuant to an Indenture dated as of July 1, 1994
(the "Indenture") executed and delivered between the Company and Meridian Trust
Company, as trustee (the "Trustee") to which reference is made to the Indenture
for a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Debentures. By the terms of the Indenture, debentures (the "Debentures") are
issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as in the Indenture provided.
The Series A Debentures are subject to mandatory redemption prior to
maturity at 100% of the principal amount thereof plus accrued interest to the
redemption date as follows:
(i) in whole upon the dissolution of PECO Energy Capital; and
<PAGE>
A-3
(ii) in whole or in part upon a redemption of the Series A
Preferred Securities (as defined in the Indenture), but if
in part, in an aggregate principal amount equal to the
aggregate stated liquidation preference of the Series A
Preferred Securities redeemed.
The Series A Debentures are subject to redemption prior to maturity at
any time on or after July 27, 1999 at the option of the Company, in whole or in
part, at 100% of the principal amount thereof plus accrued interest to the
redemption date.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures of this series for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Debenture upon compliance by the Company with
certain conditions set forth therein.
Subject to certain exceptions in the Indenture which require the
consent of every Holder, (i) the Indenture or the Series A Debentures may be
amended with the written consent of the Holders of a majority in aggregate
principal amount of the Series A Debentures at the time outstanding, and (ii)
certain defaults or noncompliance with certain provisions may be waived by the
written consent of the Holders of a majority in aggregate principal amount of
the Series A Debentures at the time outstanding. Subject to certain exceptions
in the Indenture, without the consent of any Debentureholder, the Company and
the Trustee may amend the Indenture or the Debentures to cure any ambiguity,
defect or inconsistency, to bind a successor to the obligations of the
Indenture, to provide for uncertificated Debentures in addition to certificated
Debentures, to comply with any requirements of the Debentures and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that does not adversely affect the rights of any
Debentureholder. Amendments bind all Holders and subsequent Holders.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional,
<PAGE>
A-4
to pay the principal of and premium, if any, and interest on this Debenture at
the time and place and at the rate and in the money herein prescribed.
The Company shall have the right at any time during the term of the
Series A Debentures, from time to time to extend the interest payment period of
such Debentures to up to 60 consecutive months (the "Extended Interest Payment
Period"), at the end of which period the Company shall pay all interest then
accrued and unpaid (together with interest thereon at the rate specified for the
Series A Debentures to the extent that payment of such interest is enforceable
under applicable law); provided that, during such Extended Interest Payment
Period the Company shall not declare or pay any dividend on, redeem or purchase
any of its capital stock. Prior to the termination of any such Extended Interest
Payment Period, the Company may further extend such Extended Interest Payment
Period, provided that such Period together with all such further extensions
thereof shall not exceed 60 consecutive months. At the termination of any such
Extended Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amounts then due, the Company may select a new
Extended Interest Payment period.
As provided in the Indenture and subject to certain limitations
therein set forth, this Debenture is transferable by the registered holder
hereof on the Debenture Register of the Company, upon surrender of this
Debenture for registration of transfer at the office or agency of the Registrar
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the registered
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Debentures of authorized denominations and for the same aggregate
principal amount and series will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to presentment for registration of transfer of this Debenture,
the Company, the Trustee, any paying agent and any Debenture Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any payment agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
<PAGE>
A-5
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released. Debentures of this series so issued are issuable only in
registered form without coupons in denominations of $25 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Debentures of this series are exchangeable for a
like aggregate principal amount of Debentures of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
This Debenture shall not be valid until an authorized officer of the
Trustee manually signs the Trustee's Certificate of Authentication below.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
PECO ENERGY COMPANY
By: __________________________
Name: Morton W. Rimerman
Title: Vice President -
Finance and Treasurer
Dated: July 27, 1994
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred
to in the within-mentioned Indenture.
MERIDIAN TRUST COMPANY, as Trustee
By: __________________________
Name
______________________________
Authorized Signatory
<PAGE>
A-6
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we)
assign and transfer this Debenture to:
---------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
----------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________ agent to transfer this
Debenture on the books of the Debenture Register. The agent may substitute
another to act for him.
Dated: ________________ Signature: ________________________
(Sign exactly as your name appears
on the other side of this Debenture)
Signature Guaranty: ________________________
EXHIBIT 4.6
9% Deferrable Interest Subordinated Debentures,
Series A due 2043
No. 2 $228,092,784
PECO Energy Company, a Pennsylvania corporation (the "Company"), which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to PECO Energy Capital, L.P. ("PECO
Energy Capital") or registered assigns, the principal sum of Two Hundred
Twenty-Eight Million Ninety-Two Thousand Seven Hundred Eighty-Four Dollars on
July 27, 2043, and to pay interest on said principal sum from July 27, 1994 or
from the most recent interest payment date (each such date, an "Interest Payment
Date") to which interest has been paid or duly provided for, monthly in arrears
on the last day of each calendar month of each year commencing August 1, 1994 at
the rate of 9% per annum plus Additional Interest, if any, until the principal
hereof shall have become due and payable, and on any overdue principal and
premium, if any, and (to the extent that payment of such interest is enforceable
under applicable law) on any overdue installment of interest at the same rate
per annum. The amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the Series A Debentures (as
defined below) is not a Business Day, then payment of interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. The interest installment so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in the Indenture, be paid to the person in whose name this
Series A Debenture is registered at the close of business on the regular record
date for such interest installment, which shall be the close of business on the
Business Day next preceding such Interest Payment Date. Any such interest
installment not punctually paid or duly provided for shall forthwith cease to be
payable to the registered holders on such regular record date, and may be paid
to the person in whose name this Series A Debenture is registered at the close
of business on a special record date to be fixed by the Trustee (as defined
below) for the payment of such defaulted interest, notice whereof shall be given
to the registered holders of the Series A Debentures not less than 10 days prior
to such special record date, as more fully provided in the Indenture hereinafter
referred to. The principal of (and premium, if any) and the interest on this
Series A Debenture shall be payable at the
<PAGE>
2
office or agency of the Company maintained for that purpose in Wilmington,
Delaware, in any coin or currency of the United States of America which at the
time of payment is legal tender for payment of public and private debts;
provided however, that payment of interest may be made at the option of the
Company by check mailed to the registered holder at such address as shall appear
in the Debenture Register. Notwithstanding the foregoing, so long as the holder
of this Series A Debenture is PECO Energy Capital, the payment of the principal
of (and premium, if any) and interest (including Additional Interest, if any) on
this Series A Debenture will be made at such place and to such account as may be
designated by PECO Energy Capital.
The indebtedness evidenced by this Series A Debenture is, to the
extent provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness, and this Series A
Debenture is issued subject to the provisions of the Indenture with respect
thereto. Each Holder of this Series A Debenture, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof,
by his acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such Holder upon said provisions.
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series A Debentures"), specified
in the Indenture, limited in aggregate principal amount as specified in the
Indenture, issued under and pursuant to an Indenture dated as of July 1, 1994
(the "Indenture") executed and delivered between the Company and Meridian Trust
Company, as trustee (the "Trustee") to which reference is made to the Indenture
for a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Debentures. By the terms of the Indenture, debentures (the "Debentures") are
issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as in the Indenture provided.
The Series A Debentures are subject to mandatory redemption prior to
maturity at 100% of the principal amount thereof plus accrued interest to the
redemption date as follows:
<PAGE>
3
(i) in whole upon the dissolution of PECO Energy Capital; and
(ii) in whole or in part upon a redemption of the Series A Preferred
Securities (as defined in the Indenture), but if in part, in an
aggregate principal amount equal to the aggregate stated
liquidation preference of the Series A Preferred Securities
redeemed.
The Series A Debentures are subject to redemption prior to maturity at
any time on or after July 27, 1999 at the option of the Company, in whole or in
part, at 100% of the principal amount thereof plus accrued interest to the
redemption date.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures of this series for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Debenture upon compliance by the Company with
certain conditions set forth therein.
Subject to certain exceptions in the Indenture which require the
consent of every Holder, (i) the Indenture or the Series A Debentures may be
amended with the written consent of the Holders of a majority in aggregate
principal amount of the Series A Debentures at the time outstanding, and (ii)
certain defaults or noncompliance with certain provisions may be waived by the
written consent of the Holders of a majority in aggregate principal amount of
the Series A Debentures at the time outstanding. Subject to certain exceptions
in the Indenture, without the consent of any Debentureholder, the Company and
the Trustee may amend the Indenture or the Debentures to cure any ambiguity,
defect or inconsistency, to bind a successor to the obligations of the
Indenture, to provide for uncertificated Debentures in addition to certificated
Debentures, to comply with any requirements of the Debentures and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that does not adversely affect the rights of any
Debentureholder. Amendments bind all Holders and subsequent Holders.
<PAGE>
4
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Debenture at the time and place and at the
rate and in the money herein prescribed.
The Company shall have the right at any time during the term of the
Series A Debentures, from time to time to extend the interest payment period of
such Debentures to up to 60 consecutive months (the "Extended Interest Payment
Period"), at the end of which period the Company shall pay all interest then
accrued and unpaid (together with interest thereon at the rate specified for the
Series A Debentures to the extent that payment of such interest is enforceable
under applicable law); provided that, during such Extended Interest Payment
Period the Company shall not declare or pay any dividend on, redeem or purchase
any of its capital stock. Prior to the termination of any such Extended Interest
Payment Period, the Company may further extend such Extended Interest Payment
Period, provided that such Period together with all such further extensions
thereof shall not exceed 60 consecutive months. At the termination of any such
Extended Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amounts then due, the Company may select a new
Extended Interest Payment period.
As provided in the Indenture and subject to certain limitations
therein set forth, this Debenture is transferable by the registered holder
hereof on the Debenture Register of the Company, upon surrender of this
Debenture for registration of transfer at the office or agency of the Registrar
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the registered
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Debentures of authorized denominations and for the same aggregate
principal amount and series will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to presentment for registration of transfer of this Debenture,
the Company, the Trustee, any paying agent and any Debenture Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the
<PAGE>
5
Company nor the Trustee nor any payment agent nor any Debenture Registrar shall
be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released. Debentures of this series so issued are issuable only in
registered form without coupons in denominations of $25 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Debentures of this series are exchangeable for a
like aggregate principal amount of Debentures of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
This Debenture shall not be valid until an authorized officer of the
Trustee manually signs the Trustee's Certificate of Authentication below.
<PAGE>
6
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
PECO ENERGY COMPANY
By: __________________________
Name: J. Barry Mitchell
Title: Vice President -
Finance and Treasurer
[SEAL]
Attest:
------------------------------
Name:
Title:
Dated: December __, 1994
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred
to in the within-mentioned Indenture.
MERIDIAN TRUST COMPANY
By: __________________________
Name
------------------------------
Authorized Signatory
<PAGE>
7
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign
and transfer this Debenture to:
---------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
----------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________ agent to transfer this
Debenture on the books of the Debenture Register. The agent may substitute
another to act for him.
Dated: ________________ Signature: ________________________
(Sign exactly as your name appears
on the other side of this Debenture)
Signature Guaranty: ________________________
EXHIBIT 4-7
PAYMENT AND GUARANTEE AGREEMENT
THIS PAYMENT AND GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as of
July 27, 1994, is executed and delivered by PECO Energy Company, a Pennsylvania
corporation (the "Guarantor"), for the benefit of the Holders (as defined below)
from time to time of the Series A Preferred Securities (as defined below) of
PECO Energy Capital, L.P., a Delaware limited partnership ("PECO Energy
Capital"), the general partner of which is PECO Energy Capital Corp. (the
"General Partner"), a Delaware corporation and a wholly owned subsidiary of the
Guarantor.
WHEREAS, PECO Energy Capital is issuing on the date hereof $221,250,000
aggregate stated liquidation preference of limited partner interests of a series
designated the 9% Cumulative Monthly Income Preferred Securities, Series A (the
"Series A Preferred Securities"), and the Guarantor desires to enter into this
Guarantee Agreement for the benefit of all Holders, as provided herein;
WHEREAS, PECO Energy Capital will loan the proceeds from the issuance and
sale of the Preferred Securities and the related capital contribution of the
General Partner to PECO Energy Capital (the "G.P. Capital Contribution") to the
Guarantor, and the Guarantor will issue Subordinated Debentures in accordance
with the Indenture (as defined below) to evidence such loan; and
<PAGE>
2
WHEREAS, the Guarantor desires to irrevocably and unconditionally agree to
the extent set forth herein to pay to the Holders the Guarantee Payments (as
defined below) and to make certain other undertakings on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other consideration,
receipt of which is hereby acknowledged, the Guarantor, intending to be legally
bound hereby, agrees as follows:
ARTICLE I
As used in this Guarantee Agreement, each term set forth below shall,
unless the context otherwise requires, have the following meaning. Each
capitalized term used but not otherwise defined herein shall have the meaning
assigned to such term in the Amended and Restated Limited Partnership Agreement
of PECO Energy Capital dated as of July 25, 1994 (the "Limited Partnership
Agreement").
"Guarantee Payments" shall mean the following payments, without
duplication, to the extent not paid by PECO Energy Capital: (i) any accumulated
and unpaid monthly distributions on the Series A Preferred Securities out of
moneys legally available therefor held by PECO Energy Capital, (ii) the
Redemption Price
<PAGE>
3
(as defined below) payable with respect to any Series A Preferred Securities
called for redemption by PECO Energy Capital out of moneys legally available
therefor held by PECO Energy Capital, and (iii) upon liquidation of PECO Energy
Capital, the lesser of (a) the Liquidation Distribution (as defined below) and
(b) the amount of assets of PECO Energy Capital available for distribution to
Holders in liquidation of PECO Energy Capital, and (iv) any Additional Amounts
(as defined in the Action of the General Partner creating the Series A Preferred
Securities under the Limited Partnership Agreement) payable by PECO Energy
Capital in respect of the Series A Preferred Securities.
"Holder" shall mean any person in whose name a Series A Preferred Security
is registered on the registration books maintained by PECO Energy Capital;
provided, however, that in determining whether the Holders of the requisite
percentage of Series A Preferred Securities have given any request, notice,
consent or waiver hereunder, "Holder" shall not include the Guarantor or any
entity owned more than 50% by the Guarantor, either directly or indirectly.
"Indenture" shall mean the Indenture, dated July 1, 1994, between the
Guarantor and Meridian Trust Company and pursuant to which the Guarantor has
issued its 9% Deferrable Interest Subordinated Debentures, Series A (the "Series
A Subordinated Debentures") in an amount equal to the aggregate stated
<PAGE>
4
liquidation preference of the Series A Preferred Securities and the G.P. Capital
Contribution.
"Liquidation Distribution" shall mean the aggregate of the stated
liquidation preference of $25 per Series A Preferred Security and all
accumulated and unpaid distributions to the date of payment.
"Redemption Price" shall mean the aggregate of $25 per Series A Preferred
Security and all accumulated and unpaid distributions to the date fixed for
redemption.
"Special Representative" shall mean any representative of the Holders
appointed pursuant to Section 13.02(d) of the Limited Partnership Agreement.
ARTICLE II
SECTION 2.01. The Guarantor hereby irrevocably and unconditionally agrees
to pay in full to the Holders the Guarantee Payments, as and when due (except to
the extent paid by PECO Energy Capital), to the fullest extent permitted by law,
regardless of any defense, right of set-off or counterclaim which the Guarantor
may have or assert against PECO Energy Capital or the General Partner. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment by the
<PAGE>
5
Guarantor to the Holders or by payment of such amounts by PECO Energy Capital to
the Holders. Notwithstanding anything to the contrary herein, the Guarantor
retains all of its rights under Section 4.01(b) of the Indenture to extend the
interest payment period on the Series A Subordinated Debentures and the
Guarantor shall not be obligated hereunder to pay during an Extension Period any
monthly distributions on the Series A Preferred Securities which are not paid by
PECO Energy Capital during such Extension Period.
SECTION 2.02. The Guarantor hereby waives notice of acceptance of this
Guarantee Agreement and of any liability to which it applies or may apply,
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 2.03. Except as otherwise set forth herein, the obligations,
covenants, agreements and duties of the Guarantor under this Guarantee Agreement
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by PECO Energy Capital of any express or implied
agreement, covenant, term or condition relating to the Series A
<PAGE>
6
Preferred Securities to be performed or observed by PECO Energy Capital;
(b) the extension of time for the payment by PECO Energy Capital of
all or any portion of the distributions, Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Series A
Preferred Securities or the extension of time for the performance of any
other obligation under, arising out of, or in connection with, the Series A
Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders or the Special Representative to enforce, assert or exercise
any right, privilege, power or remedy conferred on the Holders or the
Special Representative pursuant to the terms of the Series A Preferred
Securities, or any action on the part of PECO Energy Capital granting
indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings
<PAGE>
7
affecting, PECO Energy Capital or any of the assets of PECO Energy Capital;
(e) any invalidity of, or defect or deficiency in, any of the Series A
Preferred Securities; or
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred.
There shall be no obligation to the Holders to give notice to, or obtain
the consent of, the Guarantor with respect to the occurrence of any of the
foregoing.
SECTION 2.04. The Guarantor expressly acknowledges that (i) this Guarantee
Agreement will be deposited with the General Partner to be held for the benefit
of the Holders; (ii) in the event of the appointment of a Special
Representative, the Special Representative may enforce this Guarantee Agreement
for such purpose; (iii) if no Special Representative has been appointed, the
General Partner has the right to enforce this Guarantee Agreement on behalf of
the Holders; (iv) the Holders of not less than 10% in aggregate stated
liquidation preference of the Series A Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available in respect of this Guarantee Agreement including the giving of
directions to the General Partner or the Special Representative
<PAGE>
8
as the case may be; and (v) if the General Partner or Special Representative
fails to enforce this Guarantee Agreement as above provided, any Holder may
institute a legal proceeding directly against the Guarantor to enforce its
rights under this Guarantee Agreement, without first instituting a legal
proceeding against PECO Energy Capital or any other person or entity.
SECTION 2.05. This is a guarantee of payment and not of collection. A
Holder or the Special Representative may enforce this Guarantee Agreement
directly against the Guarantor, and the Guarantor will waive any right or remedy
to require that any action be brought against PECO Energy Capital or any other
person or entity before proceeding against the Guarantor. The Guarantor agrees
that this Guarantee Agreement shall not be discharged except by payment of the
Guarantee Payments in full (to the extent not paid by PECO Energy Capital) and
by complete performance of all obligations of the Guarantor contained in this
Guarantee Agreement.
SECTION 2.06. The Guarantor will be subrogated to all rights of the Holders
against PECO Energy Capital in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by PECO Energy Capital pursuant to Section 2.01; provided, however, that
the Guarantor shall not (except to the extent required by mandatory provisions
of law) exercise any rights which it may
<PAGE>
9
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of a payment under this Guarantee Agreement,
if, at the time of any such payment, any amounts remain due and unpaid under
this Guarantee Agreement. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to pay over such
amount to the Holders.
SECTION 2.07. The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of PECO Energy Capital with respect to the Series
A Preferred Securities and that the Guarantor shall be liable as principal and
sole debtor hereunder to make Guarantee Payments pursuant to the terms of this
Guarantee Agreement notwithstanding the occurrence of any event referred to in
subsections (a) through (f), inclusive, of Section 2.03 hereof.
ARTICLE III
SECTION 3.01. So long as any Series A Preferred Securities remain
outstanding, neither the Guarantor nor any majority-owned subsidiary of the
Guarantor shall declare or pay any dividend on, or redeem, purchase, acquire or
make a liquidation payment with respect to, any of its capital stock (other than
dividends by a wholly-owned subsidiary) if at such time the Guarantor shall be
in default with respect to its payment or other obligations
<PAGE>
10
hereunder or there shall have occurred any event that, with the giving of notice
or the lapse of time or both, would constitute an Event of Default under the
Indenture. The Guarantor shall take all actions necessary to ensure the
compliance of its subsidiaries with this Section 3.01.
SECTION 3.02. So long as any Series A Preferred Securities are outstanding,
the Guarantor agrees to maintain its corporate existence; provided that the
Guarantor may consolidate with or merge with or into, or sell, convey, transfer
or lease all or substantially all of its assets (either in one transaction or a
series of transactions) to, any person, corporation, partnership, limited
liability company, joint venture association, joint stock company, trust or
unincorporated association if such entity formed by or surviving such
consolidation or merger or to which such sale, conveyance, transfer or lease
shall have been made, if other than the Guarantor, (i) is organized and existing
under the laws of the United States of America or any state thereof or the
District of Columbia, and (ii) shall expressly assume all the obligations of the
Guarantor under this Agreement.
SECTION 3.03. This Guarantee Agreement will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all general liabilities of the Guarantor.
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11
ARTICLE IV
This Guarantee Agreement shall terminate and be of no further force and
effect upon full payment of the Redemption Price of all Series A Preferred
Securities or upon full payment of the amounts payable to the Holders upon
liquidation of PECO Energy Capital; provided, however, that this Guarantee
Agreement shall continue to be effective or shall be reinstated, as the case may
be, if at any time any Holder must restore payments of any sums paid under the
Series A Preferred Securities or under this Guarantee Agreement for any reason
whatsoever.
ARTICLE V
SECTION 5.01. All guarantees and agreements contained in this Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders.
Except as provided in Section 3.02, the Guarantor may not assign its obligations
hereunder without the prior approval of the Holders of not less than 66 2/3% of
the aggregate stated liquidation preference of all Series A Preferred Securities
then outstanding.
SECTION 5.02. This Guarantee Agreement may only be amended by a written
instrument executed by the Guarantor; provided that, so long as any of the
Series A Preferred Securities remain
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12
outstanding, any such amendment that adversely affects the holders of Series A
Preferred Securities, any termination of this Guarantee Agreement and any waiver
of compliance with any covenant hereunder shall be effected only with the prior
approval of the Holders of not less than 66 2/3% of the aggregate liquidation
preference of all Series A Preferred Securities then outstanding.
SECTION 5.03. All notices, requests or other communications required or
permitted to be given hereunder to the Guarantor shall be deemed given if in
writing and delivered personally or by recognized overnight courier or express
mail service or by facsimile transmission (confirmed in writing) or by
registered or certified mail (return receipt requested), addressed to the
Guarantor at the following address (or at such other address as shall be
specified by notice to the Holders):
PECO Energy Company
2301 Market Street
P.O. Box 8699
Philadelphia, Pennsylvania 19101
Facsimile No.: (215) 841-5743
Attention: Treasurer
All notices, requests or other communications required or permitted to be
given hereunder to the Holders shall be deemed given if in writing and delivered
by the Guarantor in the same manner as notices sent by PECO Energy Capital to
the Holders.
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13
SECTION 5.04. This Guarantee Agreement is solely for the benefit of the
Holders and is not separately transferable from the Series A Preferred
Securities.
SECTION 5.05. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
PECO ENERGY COMPANY
By:________________________
Name: Morton W. Rimerman
Title: Vice President - Finance
and Treasurer
EXHIBIT 10-7
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF PECO ENERGY CAPITAL, L.P.
This AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT, dated as of
July 25, 1994, of PECO Energy Capital, L.P., a Delaware limited partnership (the
"Partnership"), is made by and among PECO Energy Capital Corp., as General
Partner, PECO Energy Company, as Class A Limited Partner and the Persons (as
defined below) who become limited partners of the Partnership in accordance with
the provisions hereof.
WHEREAS, PECO Energy Capital Corp. and PECO Energy Company have
heretofore formed a limited partnership pursuant to the Delaware Act, by filing
a Certificate of Limited Partnership (as defined below) with the Secretary of
State of the State of Delaware on May 23, 1994, and entering into a Limited
Partnership Agreement of the Partnership dated as of May 23, 1994 (the "Limited
Partnership Agreement");
WHEREAS, the parties hereto desire to continue the Partnership as a
limited partnership under the Delaware Act and to amend and restate the Limited
Partnership Agreement in its entirety.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree to amend and restate the Limited Partnership Agreement in its
entirety as follows:
ARTICLE I - Definitions
For purposes of this Agreement, each of the following terms shall have
the meaning set forth below (such meaning to be equally applicable to both
singular and plural forms of the terms so defined).
"Action" shall have the meaning set forth in Section 13.01.(b).
"Additional Amounts" shall have the meaning set forth in 13.01(b)(ix).
"Affiliate" shall mean, with respect to the Person to which it refers,
a Person that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, such subject
Person.
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2
"Agreement" shall mean this Amended and Restated Limited Partnership
Agreement, as amended, modified, supplemented or restated from time to time,
including, without limitation, by any Action establishing a series of Preferred
Partner Interests.
"Book Entry Interests" shall mean a beneficial interest in the
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 14.04.
"Business Day" shall mean any day other than a day on which banking
institutions in The City of New York or the State of Delaware are authorized or
required by law to close.
"Capital Account" shall have the meaning set forth in Section 4.01.
"Certificate" shall mean a certificate substantially in the form
attached hereto as Exhibit A, evidencing a Preferred Partner Interest.
"Certificate of Limited Partnership" shall mean the Certificate of
Limited Partnership of the Partnership and any and all amendments thereto and
restatements thereof filed with the Secretary of State of the State of Delaware.
"Class A Limited Partner" shall mean PECO, in its capacity as a
limited partner of the Partnership.
"Clearing Agency" shall mean an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean a broker dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Code" shall mean the United States Internal Revenue Code of 1986 and
(unless the context requires otherwise) the rules and regulations promulgated
thereunder, as amended from time to time.
"Commission" shall mean the Securities and Exchange Commission.
"Covered Person" shall mean any Partner or the Special Representative,
any Affiliate thereof or any officers, directors, shareholders, partners,
members, employees, representatives or agents of a Partner, the Special
Representative or their
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3
respective Affiliates, or any employee or agent of the Partnership or its
Affiliates.
"Definitive Certificate" shall have the meaning set forth in Section
14.04.
"Delaware Act" shall mean the Delaware Revised Uniform Limited
Partnership Act, 6 Del.C.ss.17-101, et seq. as amended from time to time or any
successor statute thereto.
"Economic Risk of Loss" shall mean the "economic risk of loss" that
any Partner is treated as bearing under Treasury Regulation Section 1.752-2 with
respect to any Partnership liability. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
"Fiscal Year" shall have the meaning set forth in Section 7.01.
"General Partner" shall mean PECO Capital, in its capacity as general
partner of the Partnership, together with any successor thereto that becomes a
general partner of the Partnership pursuant to the terms of this Agreement.
"Guarantee" shall mean the Payment and Guarantee Agreement to be dated
as of July 27, 1994, as amended or supplemented from time to time, of PECO and
any additional Payment and Guarantee Agreements entered into by PECO for the
benefit of the Partners.
"Indemnified Person" shall mean the General Partner or the Special
Representative, any Affiliate thereof or any officers, directors, shareholders,
partners, members, employees, representatives or agents thereof, or any employee
or agent of the Partnership or its Affiliates.
"Indenture" shall mean the Indenture dated as of July 1, 1994, as
amended or supplemented from time to time, between PECO and Meridian Trust
Company, as Trustee and any additional Indentures entered into by PECO pursuant
to which Subordinated Debentures of PECO are to be issued.
"Interest" shall mean the entire partnership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all of
the terms and provisions of this Agreement.
<PAGE>
4
"Investment Company Act Event" shall mean the occurrence of a change
in law or regulation or a change in official interpretation of law or regulation
by any legislative body, court, governmental agency or regulatory authority (a
"Change in 40 Act Law") to the effect that the Partnership is or will be
considered an "investment company" which is required to be registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), which Change in 40
Act Law becomes effective on or after the date of issuance of any series of
Preferred Partner Interests; provided, that no Investment Company Act Event
shall be deemed to have occurred if the Partnership has received an opinion of
counsel (which may be regular counsel to PECO or an Affiliate, but not an
employee thereof) experienced in such matters, to the effect that PECO and/or
the Partnership has taken reasonable measures, in its discretion, to avoid such
Change in 40 Act Law so that notwithstanding such Change in 40 Act Law, the
Partnership is not required to be registered as an "investment company" within
the meaning of the 1940 Act.
"Limited Partners" shall mean the Class A Limited Partner, if any, and
the Preferred Partners.
"Liquidating Distributions" shall mean distributions of Partnership
property made upon a liquidation and dissolution of the Partnership as provided
in Article XII.
"Liquidating Trustee" shall have the meaning set forth in Section
12.01.
"Liquidation Distribution" shall mean the liquidation preference of
each series of Preferred Partner Interests as set forth in the Action for such
series.
"Loss Items" shall mean, with respect to any fiscal period, items of
gross Partnership loss, deduction or expense for such period.
"Net Income" or "Net Loss" shall mean, with respect to any Fiscal
Year, the sum of the Partnership's (a) net gain or loss from the sale or
exchange of the Partnership's capital assets during such Fiscal Year, and (b)
all other items of income, gain, loss, deduction and expense for such Fiscal
Year that are not included in (a). Net Income or Net Loss shall be determined in
accordance with Federal tax accounting principles rather than generally accepted
accounting principles, except that a distribution in kind of Partnership
property shall be treated as a taxable disposition of such property for its fair
market value (taking into account Section 7701(g) of the Code) on the date of
distribution. For purposes of determining the Capital Accounts as set forth in
Article IV, "Net Income" and "Net Loss" shall be computed in the same manner as
the Partnership computes
<PAGE>
5
its income for Federal income tax purposes, except that adjustments shall be
made in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv), which
adjustments shall include any income which is exempt from United States Federal
income tax, all Partnership losses and all expenses properly chargeable to the
Partnership, whether deductible or non-deductible and whether described in
Section 705(a)(2)(B) of the Code, treated as so described pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i), or otherwise.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"Partners" shall mean the General Partner and the Limited Partners.
"Partnership" shall mean PECO Energy Capital, L.P., a limited
partnership formed under the laws of the State of Delaware.
"PECO" shall mean PECO Energy Company and its successors.
"PECO Capital" shall mean PECO Energy Capital Corp. and its
successors.
"Person" shall mean any individual, general partnership, limited
partnership, corporation, limited liability company, joint venture, trust,
business trust, cooperative or association and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"Preferred Partner" shall mean a limited partner of the Partnership
who holds one or more Preferred Partner Interests.
"Preferred Partner Interest Owner" shall mean, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Preferred Partner Interests" shall mean the Interests described in
Article XIII.
"Purchase Price" shall mean the amount paid for each Preferred Partner
Interest.
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6
"Redemption Price" shall have the meaning set forth in Section
13.01(b)(v).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Special Event" shall mean a Tax Event or an Investment Company Act
Event.
"Special Representative" shall have the meaning set forth in Section
13.02(d).
"Subordinated Debentures" shall mean the Debentures of PECO issued
under the Indenture.
"Tax Event" shall mean that the Partnership shall have received an
opinion of counsel (which may be regular counsel to PECO or an Affiliate, but
not an employee thereof) experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein affecting taxation,
or as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such interpretation or pronouncement is announced on or after the
date of issuance of any series of Preferred Partner Interests, there is more
than an insubstantial risk that (i) the Partnership is subject to United States
Federal income tax with respect to interest received on the related Subordinated
Debentures or the Partnership will otherwise not be taxed as a Partnership or
(ii) interest payable by PECO to the Partnership on the related Subordinated
Debentures will not be deductible for United States Federal income tax purposes
or (iii) the Partnership is subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Tax Matters Partner" shall have the meaning set forth in Section
7.05.
"Transfer" shall mean any transfer, sale, assignment, gift, pledge,
hypothecation or other disposition or encumbrance of an interest in the
Partnership.
"Treasury Regulations" shall mean the final and temporary income tax
regulations, as well as the procedural and administrative regulations,
promulgated by the United States Department of the Treasury under the Code, as
amended from time to time.
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7
"Trustee" shall mean the Meridian Trust Company or any other trustee
under the Indenture.
"Underwriting Agreement" shall mean the Underwriting Agreement entered
into on July 20, 1994 among the Partnership, PECO and the underwriters named
therein with regard to the sale of Preferred Partner Interests and related
securities and any additional Underwriting Agreements entered into by the
Partnership and PECO with regard to the sale of additional Preferred Partner
Interests and related securities.
ARTICLE II - Continuation; Name; Purposes; Term; Definitions
Section 2.01. Formation. The parties hereto hereby join together to
continue a limited partnership which shall exist under and be governed by the
Delaware Act. The Partnership shall make any and all filings or disclosures
required under the laws of Delaware or otherwise with respect to its
continuation as a limited partnership, its use of a fictitious name or otherwise
as may be required. The Partnership shall be a limited partnership among the
Partners solely for the purposes specified in Section 2.03 hereof, and this
Agreement shall not be deemed to create a partnership among the Partners with
respect to any activities whatsoever other than the activities within the
business purposes of the Partnership as specified in Section 2.03. No Partner
shall have any power to bind any other Partner with respect to any matter except
as specifically provided in this Agreement. No Partner shall be responsible or
liable for any indebtedness or obligation of any other Partner incurred either
before or after the execution of this Agreement. The assets of the Partnership
shall be owned by the Partnership as an entity, and no Partner individually
shall own any direct interest in the assets of the Partnership.
Section 2.02. Name and Place of Business. The name of the Partnership
is "PECO Energy Capital, L.P." The Partnership may operate under the name of
"PECO Energy Capital" and such name shall be used for no purposes other than
those set forth herein. The principal place of business of the Partnership shall
be 1013 Centre Road, Suite 350F, Wilmington, Delaware, or at such other place as
may be selected by the General Partner in its sole discretion.
Section 2.03. Purposes. The sole purposes of the Partnership are to
issue and sell Interests in the Partnership, including, without limitation,
Preferred Partner Interests, and to use the proceeds of all sales of Interests
in the Partnership to purchase Subordinated Debentures issued by PECO pursuant
to the Indenture and to effect other similar arrangements permitted by this
Agreement, and to engage in any and all activities
<PAGE>
8
necessary, convenient, advisable or incidental thereto. The Partnership shall
not borrow money or issue debt or mortgage or pledge any of its assets.
Section 2.04. Term. The Partnership was formed on May 23, 1994 and
shall continue without dissolution through April 30, 2093, unless sooner
dissolved as provided in Article XI hereof.
Section 2.05. Qualification in Other Jurisdictions. The General
Partner shall cause the Partnership to be qualified, formed or registered under
assumed or fictitious name statutes or similar laws in any jurisdiction in which
the Partnership transacts business. The General Partner shall execute, deliver
and file any certificates (and any amendments and/or restatements thereof)
necessary for the Partnership to qualify to do business in any jurisdiction in
which the Partnership may wish to conduct business.
Section 2.06. Admission of Preferred Partners. Without execution of
this Agreement, upon receipt by a Person of a Certificate and payment for the
Preferred Partner Interest being acquired by such Person, which shall be deemed
to constitute a request by such Person that the books and records of the
Partnership reflect its admission as a Preferred Partner, such Person shall be
admitted to the Partnership as a Preferred Partner and shall become bound by
this Agreement.
Section 2.07. Records. The name and mailing address of each Partner
and the amount contributed to the capital of the Partnership shall be listed on
the books and records of the Partnership. The Partnership shall keep such other
records as are required by Section 17-305 of the Delaware Act. The General
Partner shall update the books and records from time to time as necessary to
accurately reflect the information therein.
Section 2.08. Withdrawal of Class A Limited Partner. Upon the
admission of at least one Preferred Partner as a limited partner of the
Partnership, the Class A Limited Partner shall be deemed to have withdrawn from
the Partnership as a limited partner of the Partnership, and upon such
withdrawal, the Class A Limited Partner shall have its capital contribution
returned to it without any interest or deduction and shall have no further
interest in the Partnership.
ARTICLE III - Capital Contributions
Section 3.01. Capital Contributions. As of the date of this Agreement,
the General Partner has contributed the amount of $1,000 to the capital of the
Partnership and shall make any
<PAGE>
9
further contributions required to satisfy its obligations under Section 3.04.
Each Preferred Partner, or its predecessor in interest, will contribute to the
capital of the Partnership the amount of the Purchase Price for the Preferred
Partner Interests held by it.
Section 3.02. Additional Capital Contributions. No Partner shall be
required to make any additional contributions or advances to the Partnership
except as provided in Section 3.04. or by law. The General Partner may make
additional capital contributions in excess of the amounts required under this
Agreement at any time.
Section 3.03. No Interest or Withdrawals. No interest shall accrue on
any capital contribution made by a Partner, and no Partner shall have the right
to withdraw or to be repaid any portions of its capital contributions so made,
except as specifically provided in this Agreement.
Section 3.04. Minimum Capital Contribution of General Partner.
Whenever any Limited Partner makes a capital contribution, the General Partner
shall immediately make the capital contribution sufficient to cause the
aggregate capital contribution of the General Partner to equal 3% of the
aggregate capital contributed by all Partners. Any such additional contributions
shall constitute additional capital contributions made by the General Partner.
Section 3.05. Partnership Interests. Unless otherwise provided herein,
the percentage interests of the Partners shall be as determined in proportion to
the capital contributions of the Partners.
Section 3.06. Interests. Each Partner's respective Preferred Partner
Interests shall be set forth on the books and records of the Partnership. Each
Partner hereby agrees that its Interests shall for all purposes be personal
property. No Partner has an interest in specific Partnership property. The
Partnership shall not issue any additional interest in the Partnership after the
date hereof other than General Partner Interests or Preferred Partner Interests.
ARTICLE IV - Capital Accounts
Section 4.01. Capital Accounts. There shall be established on the
books of the Partnership a capital account ("Capital Account") for each Partner
that shall consist of the initial capital contribution to the Partnership made
by such Partner (or such Partner's predecessor in interest), increased by: (a)
any additional capital contributions made by such
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10
Partner, (b) the agreed value of any property subsequently contributed to the
capital of the Partnership by such Partner; and (c) Net Income allocated to any
Partner (or predecessor thereof). A Partner's Capital Account shall be decreased
by: (a) Net Loss allocated to any Partner (or predecessor thereof); and (b) any
distributions made to such Partner. In addition to and notwithstanding the
foregoing, Capital Accounts shall be otherwise adjusted in accordance with the
tax accounting principles set forth in Treasury Regulation Section
1.704-1(b)(2)(iv).
Section 4.02. Compliance With Treasury Regulations. The foregoing
provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Section 704(b) of
the Code and Treasury Regulation Section 1.704-1(b) and shall be interpreted and
applied in a manner consistent with such regulations. In the event that the
General Partner shall determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto, are determined in order
to comply with such regulations, the General Partner may make such modification.
ARTICLE V - Allocations
Section 5.01. Profits and Losses. Each fiscal period, the Net Income
of the Partnership shall be allocated (i) first, to the Preferred Partners, pro
rata in proportion to the number of Preferred Partner Interests held by each
Preferred Partner and at the distribution rate specified in the Action for each
series of Preferred Partner Interests, in an amount equal to the excess of (a)
the distributions accrued on such Preferred Partner Interests since their date
of issuance through and including the close of the current fiscal period
(whether or not paid) over (b) the amount of profits allocated to the Preferred
Partners pursuant to this Section 5.01(i) in all prior fiscal periods; and (ii)
thereafter, to the General Partner. The Net Losses of the Partnership shall be
allocated each year to the General Partner.
Section 5.02. Allocation Rules. For purposes of determining the
profits, losses or any other items allocable to any period, profits, losses and
any such other items shall be determined on a daily, monthly or other basis, as
determined by the General Partner in its sole and absolute discretion using any
method that is permissible under Section 706 of the Code and the Treasury
Regulations thereunder. The Partners are aware of the income tax consequences of
the allocations made by this Article V and hereby agree to be bound by the
provisions of this Article V in reporting their shares of Partnership income and
loss for income tax purposes.
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11
Section 5.03. Adjustments to Reflect Changes in Interests.
Notwithstanding the foregoing, with respect to any Fiscal Year during which any
Partner's percentage interest in the Partnership changes, whether by reason of
the admission of a Partner, the withdrawal of a Partner, a non-pro rata
contribution of capital to the Partnership or any other event described in
Section 706(d)(1) of the Code and the Treasury Regulations issued thereunder,
allocations of the items of income, gain, loss and deduction of the Partnership
shall be adjusted appropriately to take into account the varying interests of
the Partners during such Fiscal Year. The General Partner shall consult with the
Partnership's accountants and other tax advisors and shall select the method of
making such adjustments, which method shall be used consistently thereafter.
Section 5.04. Tax Allocations. For Federal, state and local income tax
purposes, Partnership income, gain, loss, deduction or credit (or any item
thereof) for each Fiscal Year shall be allocated to and among the Partners in
order to reflect the allocations made pursuant to the provisions of this Article
V for such Fiscal Year (other than allocations of items which are not deductible
or are excluded from taxable income), taking into account any variation between
the adjusted tax basis and book value of Partnership property in accordance with
the principles of Section 704(c) of the Code.
Section 5.05. Qualified Income Offset. Notwithstanding any other
provision hereof, if any Partner unexpectedly receives an adjustment, allocation
or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6) which creates or increases a deficit in
the Capital Account of such Partner (and, for this purpose, the existence of a
deficit shall be determined by reducing the Partner's Capital Account by the
items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), and
(6)), the next available gross income of the Partnership shall be allocated to
the Partners having such deficit balances, in proportion to the deficit
balances, until such deficit balances are eliminated as quickly as possible. The
provisions of this Section 5.05 are intended to constitute a "qualified income
offset" within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted and implemented as therein provided.
Section 5.06. Taxpayer Information. Any Person who holds Preferred
Partner Interests as a nominee for another Person is required to furnish to the
Partnership (a) the name, address and taxpayer identification number of the
beneficial owner and the nominee; (b) information as to whether the beneficial
owner is (i) a Person that is not a United States Person, (ii) a foreign
government, an international organization or any wholly owned agency or
instrumentality of either of the foregoing, or
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12
(ii) a tax-exempt entity; (c) the amount and description of Preferred Partner
Interests held, acquired or transferred for the beneficial owner; and (d)
certain information including the dates of acquisitions and transfers, means of
acquisitions and transfers, and acquisitions cost for purchases, as well as the
amount of net proceeds from sales.
ARTICLE VI - Distributions
Section 6.01. Distributions. Preferred Partners shall receive periodic
distributions, if any, in accordance with the applicable terms of the Preferred
Partner Interests, as and when declared by the General Partner. Subject to the
rights of the holders of the Preferred Partner Interests, the General Partner
shall receive such distributions, if any, as may be declared from time to time
by the General Partner.
Section 6.02. Certain Distributions Prohibited. Notwithstanding
anything in this Agreement to the contrary, all Partnership distributions shall
be subject to the following limitations:
(a) No distribution shall be made to any Partner if, and to the extent
that, such distribution would not be permitted under Section 17-607 of the
Delaware Act or other applicable law.
(b) No distribution shall be made to any Partner to the extent that
such distribution, if made, would create or increase a deficit balance in the
Capital Account of such Partner.
(c) Other than Liquidating Distributions, no distribution of
Partnership property shall be made in kind. Notwithstanding anything in the
Delaware Act or this Agreement to the contrary, in the event of a Liquidating
Distribution, a Partner may be compelled in accordance with Section 12.01 to
accept a distribution of cash or any other asset in kind from the Partnership
even if the percentage of the asset distributed to it exceeds a percentage of
that asset which is equal to the percentage in which such Partner shares in
distributions from the Partnership.
ARTICLE VII - Accounting Matters; Banking
Section 7.01. Fiscal Year. The fiscal year ("Fiscal Year") of the
Partnership shall be the calendar year, or such other year as is required by the
Code.
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Section 7.02. Certain Accounting Matters. (a) At all times during the
existence of the Partnership, the General Partner shall keep, or cause to be
kept, full books of account, records and supporting documents, which shall
reflect in reasonable detail, each transaction of the Partnership. The books of
account shall be maintained on the accrual method of accounting, in accordance
with generally accepted accounting principles, consistently applied. The
Partnership shall use the accrual method of accounting for United States Federal
income tax purposes. The books of account and the records of the Partnership
shall be examined by and reported upon as of the end of each Fiscal Year by a
firm of independent certified public accountants selected by the General
Partner.
(b) The General Partner shall cause to be prepared and delivered to
each of the Partners, within 90 days after the end of each Fiscal Year of the
Partnership, annual financial statements of the Partnership, including a balance
sheet of the Partnership as of the end of such Fiscal Year and the related
statements of income or loss and a statement indicating such Partner's share of
each item of Partnership income, gain, loss, deduction or credit for such Fiscal
Year for income tax purposes.
(c) Notwithstanding anything in this Agreement to the contrary, the
General Partner may, to the maximum extent permitted by applicable law, keep
confidential from the Partners for such period of time as the General Partner
deems reasonable any information which the General Partner reasonably believes
to be in the nature of trade secrets or other information the disclosure of
which the General Partner in good faith believes is not in the best interest of
the Partnership or could damage the Partnership or which the Partnership or a
third party is required by law or by an agreement to keep confidential.
(d) The General Partner may make, or revoke, in its sole and absolute
discretion, any elections for the Partnership that are permitted under tax or
other applicable laws, including elections under Section 704(c) of the Code,
provided that the General Partner shall not make any elections pursuant to
Section 754 of the Code.
Section 7.03. Banking. The Partnership shall maintain one or more bank
accounts in the name and for the sole benefit of the Partnership. The sole
signatories for such accounts shall be designated by the General Partner.
Reserve cash, cash held pending the expenditure of funds for the business of the
Partnership or cash held pending a distribution to one or more of the Partners
may be invested in any manner at the sole and absolute discretion of the General
Partner.
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14
Section 7.04. Right to Rely on Authority of General Partner. No Person
that is not a Partner, in dealing with the General Partner, shall be required to
determine such General Partner's authority to make any commitment or engage in
any undertaking on behalf of the Partnership, or to determine any fact or
circumstance bearing upon the existence of the authority of the General Partner.
Section 7.05. Tax Matters Partner. The "tax matters partner," as
defined in Section 6231 of the Code, of the Partnership shall be the General
Partner (the "Tax Matters Partner"). The Tax Matters Partner shall receive no
compensation from the Partnership for its services in that capacity. The Tax
Matters Partner is authorized to employ such accountants, attorneys and agents
as it, in its sole and absolute discretion deems necessary or appropriate. Any
Person who serves as Tax Matters Partner shall not be liable to the Partnership
or to any Partner for any action it takes or fails to take as Tax Matters
Partner with respect to any administrative or judicial proceeding involving
"partnership items" (as defined in Section 6231 of the Code) of the Partnership.
ARTICLE VIII - Management
Section 8.01. Management. (a) The General Partner shall have full and
exclusive authority with respect to all matters concerning the conduct of the
business and affairs of the Partnership, including (without limitation) the
power, without the consent of the Limited Partners, to make all decisions it
deems necessary, advisable, convenient or appropriate to accomplish the purposes
of the Partnership. The acts of the General Partner acting alone shall serve to
bind the Partnership and shall constitute the acts of the Partners.
(b) The Limited Partners in their capacity as such shall not take part
in the management, operation or control of the business of the Partnership or
transact any business in the name of the Partnership. In addition, the Limited
Partners, in their capacity as such, shall not be agents of the Partnership and
shall not have the power to sign or bind the Partnership to any agreement or
document. The Limited Partners shall have the right to vote only with respect to
those matters specifically provided for in this Agreement. Notwithstanding
anything herein to the contrary, the Preferred Partners may exercise all rights
provided to them, if any, under the Indenture and the Guarantee.
(c) The General Partner is authorized and directed to use its best
efforts to conduct the affairs of, and to operate, the Partnership in such a way
that the Partnership would not be deemed to be an "investment company" required
to be registered
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15
under the 1940 Act or taxed as a corporation for Federal income tax purposes and
so that the Subordinated Debentures will be treated as indebtedness of PECO for
Federal income tax purposes. In this connection, the General Partner is
authorized to take any action not inconsistent with applicable law, the
Certificate of Limited Partnership or this Agreement that does not materially
adversely affect the interests of holders of Preferred Partner Interests that
the General Partner determines in its sole and absolute discretion to be
necessary, advisable or desirable for such purposes.
Section 8.02 Fiduciary Duty. (a) To the extent that, at law or in
equity, an Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Partnership or to any other Covered Person,
an Indemnified Person acting under this Agreement shall not be liable to the
Partnership or to any other Covered Person for its good faith reliance on the
provisions of this Agreement or the advice of counsel selected by the
Indemnified Person in good faith. The provisions of this Agreement, to the
extent that they restrict the duties and liabilities of an Indemnified Person
otherwise existing at law or in equity, are agreed by the parties hereto to
replace such other duties and liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between Covered Persons, or (ii) whenever
this Agreement or any other agreement contemplated herein or therein provides
that an Indemnified Person shall act in a manner that is, or provides terms that
are, fair and reasonable to the Partnership or any Partner, the Indemnified
Person shall resolve such conflict of interest, taking such action or providing
such terms, considering in each case the relative interest of each party
(including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, the advice of counsel selected by the
Indemnified Person in good faith, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by the
Indemnified Person, the resolution, action or term so made, taken or provided by
the Indemnified Person shall not constitute a breach of this Agreement or any
other agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Agreement an Indemnified Person is permitted or
required to make a decision (i) in its "discretion" or under a grant of similar
authority or latitude, the Indemnified Person shall be entitled to consider only
such interests and factors as it desires, including its own interests,
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16
and shall have no duty or obligation to give any consideration to any interest
of or factors affecting the Partnership or any other Person, or (ii) in its
"good faith" or under another express standard, the Indemnified Person shall act
under such express standard and shall not be subject to any other or different
standard imposed by this Agreement or other applicable law.
Section 8.03. Specific Obligations of the General Partner. The General
Partner hereby undertakes:
(a) to devote to the affairs of the Partnership so much of its time as
shall be necessary to carry on properly the Partnership's business and its
responsibilities hereunder;
(b) to cause the Partnership to do or refrain from doing such acts as
shall be required by Delaware law in order to preserve the valid existence of
the Partnership as a Delaware limited partnership and to preserve the limited
liability of the Limited Partners; and
(c) to pay directly all, and the Partnership shall not be obligated to
pay, directly or indirectly, any, of the costs and expenses of the Partnership
(including, without limitation, costs and expenses relating to the organization
of, and offering of limited partner interests in, the Partnership and costs and
expenses relating to the operation of the Partnership, including without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and costs and
expenses incurred in connection with the acquisition, financing, and disposition
of Partnership assets).
Section 8.04. Powers of the General Partner. The General Partner shall
have the right, power and authority, in the management of the business and
affairs of the Partnership, to do or cause to be done any and all acts deemed by
the General Partner to be necessary or appropriate to effectuate the business,
purposes and objectives of the Partnership. Without limiting the generality of
the foregoing, the General Partner shall have the power and authority without
any further act, approval or vote of any Partner to:
(a) issue Interests, including Preferred Partner Interests, and
classes and series thereof, in accordance with this Agreement;
(b) act as, or appoint another Person to act as, registrar and
transfer agent for the Preferred Partner Interests;
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(c) establish a record date with respect to all actions to be taken
hereunder that require a record date to be established, including with respect
to allocations, distributions and voting rights and declare distributions and
make all other required payments on General Partner, Class A Limited Partner and
Preferred Partner Interests as the Partnership's paying agent;
(d) enter into and perform one or more Indentures and one or more
Underwriting Agreements and use the proceeds from the issuance of the Interests
to purchase the Subordinated Debentures, in each case on behalf of the
Partnership;
(e) bring and defend on behalf of the Partnership actions and
proceedings at law or in equity before any court or governmental, administrative
or other regulatory agency, body or commission or otherwise;
(f) employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors and
consultants and pay reasonable compensation for such services;
(g) redeem each series of Preferred Partner Interests (which shall
constitute a return of capital and not a distribution of income) in accordance
with its terms and/or to the extent that the related series of Subordinated
Debentures is redeemed or reaches maturity; and
(h) execute all documents or instruments, perform all duties and
powers and do all things for and on behalf of the Partnership in all matters
necessary, convenient, advisable or incidental to the foregoing.
The expression of any power or authority of the General Partner in
this Agreement shall not in any way limit or exclude any other power or
authority which is not specifically or expressly set forth in, or precluded by,
this Agreement.
Section 8.05. Independent Affairs. Any Partner or any Affiliate
thereof may engage in or possess an interest in any other business venture of
whatever nature and description, independently or with others, wherever located
and whether or not comparable to or in competition with the Partnership or the
General Partner, or any Affiliate thereof, and neither the Partnership nor any
of the Partners shall, by virtue of this Agreement, have any rights with respect
to, or interests in, such independent ventures or the income, profits or losses
derived therefrom. No Partner or Affiliate thereof shall be obligated to present
any particular investment opportunity to the Partnership even if such
opportunity is of a character that, if presented to the Partnership, could be
taken by the Partnership, and any
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Partner or Affiliate thereof shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment opportunity.
Section 8.06. Meetings of the Partners. Meetings of the Partners of
any class or series or of all classes or series of the Partnership's Interests
may be called at any time by the Partners holding 10% in liquidation preference
of such class of series of Interests, or of all classes or series of Interests,
as the case may be, or as provided in any Action establishing a series of
Preferred Partner Interests. Except to the extent otherwise provided in any such
Action, the following provisions shall apply to meetings of Partners.
(a) Notice of any meeting shall be given to all Partners not less than
ten (10) business days nor more than sixty (60) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever a
vote, consent or approval of Partners is permitted or required under this
Agreement, such vote, consent or approval may be given at a meeting of Partners
or by written consent.
(b) Each Partner may authorize any Person to act for it by proxy on
all matters in which a Partner is entitled to participate, including waiving
notice of any meeting, or voting or participating at a meeting. Every proxy must
be signed by the Partner or its attorney-in-fact. No proxy shall be valid after
the expiration of eleven (11) months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
Partner executing it.
(c) Each meeting of Partners shall be conducted by the General Partner
or by such other Person that the General Partner may designate.
(d) Subject to the provisions of this Section 8.06, the General
Partner, in its sole and absolute discretion, shall establish all other
provisions relating to meetings of Partners, including notice of the time, place
or purpose of any meeting at which any matter is to be voted on by any Partners,
waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person or by
proxy or any other matter with respect to the exercise of any such right to
vote; provided, however, that unless the General Partner has established a lower
percentage, a majority of the Partners entitled to vote thereat shall constitute
a quorum at all meetings of the Partners.
Section 8.07. Net Worth of the General Partner. By execution of this
Agreement, the General Partner represents and covenants that (a) as of the date
hereof and at all times during
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the existence of the Partnership it will maintain a fair market value net worth
of at least ten percent (10%) of the total contributions less redemptions to the
Partnership, throughout the life of the Partnership, in accordance with Rev.
Proc. 89-12, 1989-1 C.B. 798, or such other amount as may be required from time
to time pursuant to any amendment, modification or successor to Rev. Proc. 89-12
(such net worth being computed excluding any interest in, or receivable due
from, the Partnership and including any income tax liabilities that would become
due by the General Partner upon disposition by the General Partner of all assets
included in determining such net worth), and (b) it will not make any voluntary
dispositions of assets which would reduce the net worth below the amount
described in (a).
Section 8.08. Restrictions on General Partner. So long as any series
of Subordinated Debentures are held by the Partnership, the General Partner
unless so directed by the Special Representative, shall not (i) direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or executing any trust or power conferred on the Trustee with respect
to such series, (ii) waive any past default which is available under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all of a series of Subordinated Debentures shall be due and payable
or (iv) consent to any amendment, modification or termination of the Indenture,
where such consent shall be required, without, in each case, obtaining the prior
approval of the holders of not less than 66 2/3% of the aggregate stated
liquidation preference of all series of Preferred Partner Interests affected
thereby, acting as a single class; provided, however, that where a consent under
the Indenture would require the consent of each holder affected thereby, no such
consent shall be given by the General Partner without the prior consent of each
holder of all series of Preferred Partner Interests affected thereby. The
General Partner shall not revoke any action previously authorized or approved by
a vote of any series of Preferred Partner Interests. The General Partner shall
notify all holders of such Preferred Partner Interests of any notice of default
received from the Trustee with respect to such series of Subordinated
Debentures.
ARTICLE IX - Liability and Indemnification
Section 9.01. Partnership Expenses and Liabilities.
(a) Except as provided in the Delaware Act, the General Partner shall
have the liabilities of a partner in a partnership without limited partners to
Persons other than the Partnership and the other Partners.
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(b) Except as otherwise expressly required by law, a Limited Partner,
in its capacity as such, shall have no liability in excess of (i) the amount of
its capital contributions to the Partnership, (ii) its share of any assets and
undistributed profits of the Partnership, and (iii) the amount of any
distributions wrongfully distributed to it.
Section 9.02. No Liability. Except as otherwise expressly provided in
Section 9.01(a) or by the Delaware Act, no Covered Person shall be liable to the
Partnership or to any other Partner for any act or omission performed or omitted
pursuant to the authority granted to it hereunder or by law, or from a loss
resulting from any mistake or error in judgment on its part or from the
negligence, dishonesty, fraud or bad faith of any employee, independent
contractor, broker or other agent of the Partnership, provided that such act or
omission, such mistake or error in judgment or the selection of such employee,
independent contractor, broker or other agent, as the case may be, did not
result from the willful misconduct, gross negligence or fraud of such Covered
Person. Any Covered Person shall be fully protected in relying in good faith
upon the records of the Partnership and upon such information, opinions, reports
or statements presented to the Partnership by any Person as to matters the
Covered Person reasonably believes are within such other Person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Partnership, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which distributions to Partners might properly be paid.
Section 9.03. Indemnification. To the fullest extent permitted by
applicable law, except as set forth in Section 8.03(c), an Indemnified Person
shall be entitled to indemnification from the Partnership for any loss, damage
or claim incurred by such Indemnified Person by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Partnership and in a manner reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Agreement, except that no
Indemnified Person shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Indemnified Person by reason of willful
misconduct, gross negligence or fraud with respect to such acts or omissions;
provided, however, that any indemnity under this Section 9.03 shall be provided
out of and to the extent of Partnership assets only, and except as otherwise
provided by the Delaware Act, no Covered Person shall have any personal
liability on account thereof. To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by an Indemnified Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced
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21
by the Partnership prior to the final disposition of such claim, demand, action,
suit or proceeding upon receipt by the Partnership of an undertaking by or on
behalf of the Indemnified Person to repay such amount if it shall be determined
that the Indemnified Person is not entitled to be indemnified as authorized in
this Section 9.03.
ARTICLE X - Withdrawal; Transfer Restrictions
Section 10.01. Transfer by General Partner; Admission of Substituted
General Partner. The General Partner may not Transfer its Interest (in whole or
in part) to any Person without the consent of all other Partners, provided that
the General Partner may, without the consent of any Partner, Transfer its
Interest to PECO or any direct or indirect wholly owned subsidiary of PECO.
Notwithstanding anything else herein, the General Partner may merge with or into
another Person, may permit another Person to merge with or into the General
Partner and may Transfer all or substantially all of its assets to another
Person if the General Partner is the survivor of such merger or the Person into
which the General Partner is merged or to which the General Partner's assets are
transferred is a Person organized under the laws of the United States or any
state thereof or the District of Columbia and the General Partner shall have the
right to admit the assignee or transferee of its Interest which is permitted
hereunder as a substituted or additional general partner of the Partnership,
without the consent of the Limited Partners. Any such assignee or transferee of
all or a part of the Interest of a General Partner shall be deemed admitted to
the Partnership as a general partner of the Partnership immediately prior to the
effective date of such Transfer, and such additional or successor General
Partner is hereby authorized to and shall continue the business of the
Partnership without dissolution.
Section 10.02. Withdrawal of Limited Partners. A Preferred Partner may
not withdraw from the Partnership prior to the dissolution and winding up of the
Partnership except upon the assignment of its Preferred Partner Interests
(including any redemption, repurchase, exchange or other acquisition by the
Partnership), as the case may be, in accordance with the provisions of this
Agreement. Any Person who has been assigned one or more Interests shall provide
the Partnership with a completed Form W-8 or such other documents or information
as are requested by the Partnership for tax reporting purposes. A withdrawing
Preferred Partner shall not be entitled to receive any distribution and shall
not otherwise be entitled to receive the fair value of its Preferred Partner
Interest except as otherwise expressly provided in this Agreement.
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ARTICLE XI - Dissolution of the Partnership
Section 11.01. No Dissolution. The Partnership shall not be dissolved
by the admission of Partners in accordance with the terms of this Agreement. The
death, withdrawal, incompetency, bankruptcy, dissolution or other cessation to
exist as a legal entity of a Limited Partner, or the occurrence of any other
event that terminates the Interest of a Limited Partner in the Partnership,
shall not in and of itself cause the Partnership to be dissolved and its affairs
wound up. To the fullest extent permitted by applicable law, upon the occurrence
of any such event, the General Partner, subject to the terms of this Agreement,
may, without any further act, vote or approval of any Partner, admit any Person
to the Partnership as an additional or substitute Limited Partner, which
admission shall be effective as of the date of the occurrence of such event, and
the business of the Partnership shall be continued without dissolution.
Section 11.02. Events Causing Dissolution. The Partnership shall be
dissolved and its affairs shall be wound up upon the occurrence of any of the
following events:
(a) The expiration of the term of the Partnership, as provided in
Section 2.04 hereof;
(b) The withdrawal, removal or bankruptcy of the General Partner or
Transfer (other than a grant of a security interest) by the General Partner of
its entire Interest in the Partnership when the assignee is not admitted to the
Partnership as an additional or successor General Partner in accordance with
Section 10.01 hereof, or the occurrence of any other event that results in the
General Partner ceasing to be a general partner of the Partnership under the
Delaware Act, provided, the Partnership shall not be dissolved and required to
be wound up in connection with any of the events specified in this clause (b) if
(i) at the time of the occurrence of such event there is at least one remaining
general partner of the Partnership who is hereby authorized to, agrees to and
does carry on the business of the Partnership, or (ii) within ninety (90) days
after the occurrence of such event, a majority in Interest of the remaining
Partners (or such greater percentage in Interest as is required by the Delaware
Act) agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event, if required, of one or more
additional general partners of the Partnership;
(c) The entry of a decree of judicial dissolution under the Delaware
Act; or
(d) the written consent of the General Partner and all of the
Preferred Partners.
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Section 11.03. Notice of Dissolution. Upon the dissolution of the
Partnership, the General Partner shall promptly notify the Partners of such
dissolution.
ARTICLE XII - Liquidation of Partnership Interests
Section 12.01. Liquidation. Upon dissolution of the Partnership, the
General Partner, or, in the event that the dissolution is caused by an event
described in Section 11.02(b) and there is no other General Partner, a Person or
Persons who may be approved by Preferred Partners holding not less than a
majority in liquidation preference of the Preferred Partner Interests as
liquidating trustee the "Liquidating Trustee", shall immediately commence to
wind up the Partnership's affairs; provided, however, that a reasonable time
shall be allowed for the orderly liquidation of the assets of the Partnership
and the satisfaction of liabilities to creditors so as to enable the Partners to
minimize the normal losses attendant upon a liquidation. The Preferred Partners
shall continue to share profits and losses during liquidation in the same
proportions, as specified in Articles V and VI hereof, as before liquidation.
The proceeds of liquidation shall be distributed, as realized, in the following
order and priority:
(a) to creditors of the Partnership, including Preferred Partners who
are creditors, to the extent otherwise permitted by law, in satisfaction of the
liabilities of the Partnership (whether by payment or the making of reasonable
provision for payment thereof), other than liabilities for which reasonable
provision for payment has been made and liabilities for distributions to
Partners;
(b) to the holders of Preferred Partner Interests of each series then
outstanding in accordance with the terms of the Action or Actions for such
Series; and
(c) to all Partners in accordance with their respective positive
Capital Account balances, after giving effect to all contributions,
distributions and allocations for all periods.
Section 12.02. Termination. The Partnership shall terminate when all
of the assets of the Partnership have been distributed in the manner provided
for in this Article XII, and the Certificate of Limited Partnership shall have
been cancelled in the manner required by the Delaware Act.
Section 12.03. Duty of Care. The General Partner or the Liquidating
Trustee, as the case may be, shall not be liable to the Partnership or any
Partner for any loss attributable to
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24
any act or omission of the General Partner taken in good faith in connection
with the liquidation of the Partnership and distribution of its assets in belief
that such course of conduct was in the best interest of the Partnership. The
General Partner or the Liquidating Trustee, as the case may be, may consult with
counsel and accountants with respect to liquidating the Partnership and
distributing its assets and shall be justified in acting or omitting to act in
accordance with the written opinion of such counsel or accountants, provided
they shall have been selected with reasonable care.
Section 12.04. No Liability for Return of Capital. The General Partner
and its respective officers, directors, members, shareholders, employees,
representatives, agents, partners and Affiliates shall not be personally liable
for the return of the contributions of any Partner to the Partnership. No
Partner shall be obligated to restore to the Partnership any amount with respect
to a negative Capital Account.
ARTICLE XIII - Preferred Partner Interests
Section 13.01. Preferred Partner Interests.
(a) The aggregate number of Preferred Partner Interests which the
Partnership shall have authority to issue is unlimited. Each series of Preferred
Partner Interests shall rank equally and all Preferred Partner Interests shall
rank senior to all other Interests in respect of the right to receive
distributions and the right to receive payments out of the assets of the
Partnership upon voluntary or involuntary dissolution and winding up of the
Partnership. The issuance of any Interests ranking senior to the Preferred
Partner Interests shall be deemed to materially adversely affect the rights of
the Preferred Partner Interests under this Agreement.
(b) The General Partner on behalf of the Partnership is authorized to
issue Preferred Partner Interests, in one or more series, having such
designations, rights, privileges, restrictions, and other terms and provisions,
whether in regard to distributions, return of capital or otherwise, as may from
time to time be established in a written action or actions (each, an "Action")
of the General Partner providing for the issue of such series. In connection
with the foregoing, the General Partner is expressly authorized, prior to
issuance, to set forth in an Action or Actions providing for the issue of such
series, the following:
(i) The distinctive designation of such series which shall
distinguish it from other series;
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(ii) The number of Preferred Partner Interests included in such
series, which number may be increased or decreased from time to time
unless otherwise provided by the General Partner in creating the
series;
(iii) The distribution rate (or method of determining such rate)
for Preferred Partner Interests of such series and the first date upon
which such distribution shall be payable;
(iv) The amount or amounts which shall be paid out of the assets
of the Partnership to the holders of such series of Preferred Partner
Interests upon voluntary or involuntary dissolution and winding up of
the Partnership;
(v) The price or prices at which (the "Redemption Price"), the
period or periods within which and the terms and conditions upon which
the Preferred Partner Interests of such series may be redeemed or
purchased, in whole or in part, at the option of the Partnership;
(vi) The obligation of the Partnership to purchase or redeem
Preferred Partner Interests of such series pursuant to a sinking fund
or otherwise and the price or prices at which, the period or periods
within which and the terms and conditions upon which the Preferred
Partner Interests of such series shall be redeemed, in whole or in
part, pursuant to such obligation;
(vii) The period or periods within which and the terms and
conditions, if any, including the price or prices or the rate or rates
of conversion or exchange and the terms and conditions of any
adjustments thereof, upon which the Preferred Partner Interests of
such series shall be convertible or exchangeable at the option of the
Preferred Partner, or the Partnership, into any other Interests or
securities or other property or cash or into any other series of
Preferred Partner Interests;
(viii) The voting rights, if any, of the Preferred Partner
Interests of such series in addition to those required by law or set
forth herein, and any requirement for the approval by the Preferred
Partner Interest, or of the Preferred Partner Interests of one or more
series, or of both, as a condition to specified Action or amendments
to this Agreement;
(ix) The additional amounts, if any, which the Partnership will
pay as a distribution as necessary in order that the net amounts
received by the Preferred Partners who hold such series of Preferred
Partner Interests after
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26
withholding or deduction on account of certain taxes, duties,
assessments or governmental charges will equal the amount which would
have been receivable in respect of such Preferred Partner Interests in
the absence of such withholding or deduction ("Additional Amounts");
and
(x) Any other relative rights, powers, preferences or limitations
of the Preferred Partner Interests of the series not inconsistent with
this Agreement or with applicable law.
In connection with the foregoing and without limiting the generality
thereof, the General Partner is hereby expressly authorized, without the vote or
approval of any other Partner, to take any Action to create under the provisions
of this Agreement a series of Preferred Partner Interests that was not
previously outstanding. Without the vote or approval of any other Partner, the
General Partner may execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection with the issue from time to
time of Preferred Partner Interests in one or more series as shall be necessary,
convenient or desirable to reflect the issue of such series. The General Partner
shall do all things it deems to be appropriate or necessary to comply with the
Delaware Act and is authorized and directed to do all things it deems to be
necessary or permissible in connection with any future issuance, including
compliance with any statute, rule, regulation or guideline of any Federal, state
or other governmental agency or any securities exchange.
Any Action or Actions taken by the General Partner pursuant to the
provisions of this paragraph (b) shall be deemed an amendment and supplement to
and part of this Agreement.
(c) Except as otherwise provided in this Agreement or in any Action in
respect of any series of the Preferred Partner Interests and as otherwise
required by law, all rights to the management and control of the Partnership
shall be vested exclusively in the General Partner.
(d) No holder of Interests shall be entitled as a matter of right to
subscribe for or purchase, or have any preemptive right with respect to, any
part of any new or additional issue of Interests of any class or series
whatsoever, or of securities convertible into any Interests of any class or
series whatsoever, whether now or hereafter authorized and whether issued for
cash or other consideration or by way of distribution. Any Person acquiring
Preferred Partner Interests shall be admitted to the Partnership as a Preferred
Partner upon compliance with Section 2.06.
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27
Section 13.02. Terms of All Preferred Partner Interests.
Notwithstanding anything else in any Action to the contrary, all Preferred
Partner Interests of the Partnership shall have the following voting rights,
preferences, participating, optional and other special rights and the
qualifications, limitations or restrictions of, and other matters relating to,
the Preferred Partner Interests as set forth below in this Section 13.02.
(a) Distributions.
(i) The Preferred Partners shall be entitled to receive, when, as
and if declared by the General Partner out of funds held by the
Partnership to the extent that the Partnership has cash on hand
sufficient to permit such payments and funds legally available
therefor, cumulative cash distributions at a rate per annum
established by the General Partner, calculated on the basis of a
360-day year consisting of twelve (12) months of thirty (30) days
each, and for any period shorter than a full monthly distribution
period, distributions will be computed on the basis of the actual
number of days elapsed in such period, and payable in United States
dollars monthly in arrears on the last day of each calendar month of
each year. In the event that any date on which distributions are
payable on the Preferred Partner Interests is not a Business Day, then
payment of the distribution payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date. Such
distributions will accrue and be cumulative from the original date of
issue whether or not they have been declared and whether or not there
are profits, surplus or other funds of the Partnership legally
available for the payment of distributions, or whether they are
deferred.
(ii) If distributions have not been paid in full on any series of
Preferred Partner Interests, the Partnership may not:
(A) pay any distributions on any other series of Preferred
Partner Interests, unless the amount of any distributions paid on
any Preferred Partner Interests is paid on all Preferred Partner
Interests then outstanding on a pro rata basis, on the date such
distributions are paid, so that
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(1) (x) the aggregate amount of distributions paid on
such series of Preferred Partner Interests bears to (y) the
aggregate amount of distributions paid on all such Preferred
Partner Interests outstanding the same ratio as
(2) (x) the aggregate of all accumulated arrears of
unpaid distributions in respect of such series of Preferred
Partner Interests bears to (y) the aggregate of all
accumulated arrears of unpaid distributions in respect of
such Preferred Partner Interests outstanding;
(B) pay any distribution on any general partner Interest; or
(C) redeem, purchase or otherwise acquire any other
Preferred Partner Interests or any general partner Interest;
until, in each case, such time as all accumulated and unpaid
distributions on all series of Preferred Partner Interests shall have
been paid in full for all distribution periods terminating on or prior
to, in the case of clauses (A) and (B), such payment and, in the case
of clause (C), the date of such redemption, purchase or acquisition.
(b) Redemption Procedures.
(i) Notice of any redemption (a "Notice of Redemption") of
the Preferred Partner Interests will be given by the Partnership
by mail or delivery to each record holder of Preferred Partner
Interests to be redeemed not fewer than thirty (30) nor more than
sixty (60) days prior to the date fixed for redemption thereof.
For purposes of the calculation of the date of redemption and the
dates on which notices are given pursuant to this paragraph
(b)(i), a Notice of Redemption shall be deemed to be given on the
day such notice is first mailed by first-class mail, postage
prepaid, or on the date it was delivered in person, receipt
acknowledged to the holders of such Preferred Partner Interests.
Each Notice of Redemption shall be addressed to the record
holders of the Preferred Partner Interests at the address of the
holder appearing in the books and records of the Partnership. No
defect
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29
in the Notice of Redemption or in the mailing or delivery thereof
or publication of its contents shall affect the validity of the
redemption proceedings.
(ii) The Partnership may not redeem any Preferred Partner
Interests unless all accumulated and unpaid distributions have
been paid on all Preferred Partner Interests for all monthly
distribution periods terminating on or prior to the date of
redemption. In the case of a partial redemption resulting from a
requirement that the Partnership pay Additional Amounts or
withhold or deduct certain amounts, the Partnership will (A)
cause the global certificates representing all of such series of
Preferred Partner Interests to be withdrawn from The Depository
Trust Company or its successor securities depository, (B) issue
certificates in definitive form representing such series of
Preferred Partner Interests, and (C) redeem the series or portion
of the series of Preferred Partner Interests subject to such
requirement to withhold or deduct Additional Amounts. Subject to
applicable law, PECO or its subsidiaries may at any time and from
time to time purchase outstanding Preferred Partner Interests by
tender, in the open market or by private agreement. If a partial
redemption of outstanding Preferred Partner Interests would
result in a delisting of a series of Preferred Partner Interests
from any national securities exchange on which the series of
Preferred Partner Interests is then listed, the Partnership may
then only redeem the series of Preferred Partner Interests in
whole.
(iii) If Notice of Redemption shall have been given and
payment shall have been made by the Partnership to the record
holders of the Preferred Partner Interests, then upon the date of
such payment, all rights of the Preferred Partner Interest Owners
or holders of such Preferred Partner Interests so called for
redemption will cease, except the right of the holders of such
securities to receive the Redemption Price, but without interest.
In the event that any date fixed for redemption of Preferred
Partner Interests is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest
or other
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30
payment in respect of any such delay), except that, if such
Business Day falls in the next succeeding calendar year, such
payment will be made on the immediately preceding Business Day
(in each case with the same force and effect as if made on such
day). In the event that payment of the Redemption Price in
respect of Preferred Partner Interests is not made either by the
Partnership or by PECO pursuant to the Guarantee, distributions
on such Preferred Partner Interests will continue to accrue at
the then applicable rate, from the original redemption date to
the date of payment, in which case the actual payment date will
be considered the date fixed for redemption for purposes of
calculating the Redemption Price.
(c) Liquidation Distribution. If, upon any liquidation, the
Liquidation Distribution on any series of Preferred Partner Interests can be
paid only in part because the Partnership has insufficient assets available to
pay in full the aggregate Liquidation Distribution on all Preferred Partner
Interests, then the amounts payable directly by the Partnership on such series
of Preferred Partner Interests and on all other series of Preferred Partner
Interests shall be paid on a pro rata basis, so that
(i) (1) the aggregate amount paid in respect of the
Liquidation Distribution bears to (2) the aggregate amount paid
as liquidation distributions on all other Preferred Partner
Interests the same ratio as
(ii) (1) the aggregate Liquidation Distribution bears to (2)
the aggregate maximum liquidation distributions on all other
Preferred Partner Interests.
(d) Voting Rights. The Limited Partners shall not have any right to
vote on matters concerning the Partnership except as specifically set forth in
this Agreement, in the Guarantee or as otherwise required by law. If (i) the
Partnership fails to pay distributions in full on any series of Preferred
Partner Interests for eighteen (18) consecutive months; (ii) a default under the
Indenture occurs and is continuing; or (iii) PECO is in default on any of its
payment or other obligations under the Guarantee, then the holders of the
Preferred Partner Interests, acting as a single class, will be entitled, by a
vote of the majority of the aggregate stated liquidation preference of
outstanding Preferred Partner Interests, to appoint and authorize a special
representative (the
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31
"Special Representative") to enforce the Partnership's creditor rights under the
Subordinated Debentures and the Indenture against PECO and enforce the
obligations undertaken by PECO under the Guarantee, including, after failure to
pay distributions for 60 consecutive monthly distribution periods, to declare
and pay distributions on such series of Preferred Partner Interests, the General
Partner agreeing to execute and deliver such documents as may be necessary,
appropriate or convenient for the Special Representative to enforce such rights
and obligations. Notwithstanding anything else herein, the Special
Representative shall not be admitted as a partner of the Partnership and shall
have no liability for the debts, obligations or liabilities of the Partnership.
In furtherance of the foregoing, and without limiting the powers of
any Special Representative so appointed and for the avoidance of any doubt
concerning the powers of the Special Representative, any Special Representative,
in its own name and as trustee of an express trust, may institute a proceeding,
including, without limitation, any suit in equity, an action at law or other
judicial or administrative proceeding, to enforce the Partnership's creditor
rights directly against PECO or any other obligor in connection with such
obligations to the same extent as the Partnership and on behalf of the
Partnership, and may pursue such proceeding to judgment or final decree, and
enforce the same against PECO or any other obligor in connection with such
obligations and collect, out of the property, wherever situated, of PECO or any
such other obligor upon such obligations, the monies adjudged or decreed to be
payable in the manner provided by law.
For purposes of determining whether the Partnership has failed to pay
distributions in full for eighteen (18) consecutive monthly distribution
periods, distributions shall be deemed to remain in arrears, notwithstanding any
payments in respect thereof, until full cumulative distributions have been or
contemporaneously are declared and paid with respect to all monthly distribution
periods terminating on or prior to the date of payment of such full cumulative
distributions. Subject to the requirements of applicable law, not later than
thirty (30) days after such right to appoint a Special Representative arises,
the General Partner will convene a general meeting for the above purpose. If the
General Partner fails to convene such meeting within such 30-day period, the
Preferred Partners who hold 10% of the aggregate stated liquidation preference
of the outstanding Preferred Partner Interests will be entitled to convene such
meeting. The provisions of this Agreement relating to the convening and conduct
of meetings of Partners will apply with respect to any such meeting. Any Special
Representative so appointed shall cease to act in such capacity immediately if
the Partnership (or PECO pursuant to the Guarantee) shall have paid
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32
in full all accumulated and unpaid distributions on the Preferred Partner
Interests or such default or breach by PECO, as the case may be, shall have been
cured. Notwithstanding the appointment of any such Special Representative, PECO
retains all rights under the Indenture, including the right to extend the
interest payment period on the Subordinated Debentures.
If any proposed amendment of this Agreement provides for, or the
General Partner otherwise proposes to effect (pursuant to an Action or
otherwise), any action which would materially adversely affect the powers,
preferences or special rights of any series of Preferred Partner Interests, then
holders of such series of outstanding Preferred Partner Interests will be
entitled to vote on such amendment or action of the General Partner (but not on
any other amendment or action) and, in the case of an amendment which would
equally adversely affect the powers, preferences or special rights of any other
series of Preferred Partner Interests, all holders of such series of Preferred
Partner Interests, shall vote together as a class on such amendment or action of
the General Partner (but not on any other amendment or action), and such
amendment or action shall not be effective except with the approval of Preferred
Partners holding not less than 66 2/3% of the aggregate stated liquidation
preference of such outstanding series of Preferred Partner Interests. Except as
otherwise provided under Section 11.02 or the Delaware Act, the Partnership will
be dissolved and wound up only with the consent of the holders of all
outstanding Preferred Partner Interests.
The powers, preferences or special rights of any Preferred Partner
Interests will be deemed not to be adversely affected by the creation or issue
of, and no vote will be required for the creation or issuance of, any additional
series of Preferred Partner Interests or additional general partner Interests.
Any required approval of Preferred Partner Interests may be given at a
separate meeting of such holders convened for such purpose, at a meeting of the
holders of all series of Preferred Partner Interests or pursuant to written
consent. The Partnership will cause a notice of any meeting at which holders of
any Preferred Partner Interests are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be mailed to
each holder of Preferred Partner Interests. Each such notice will include a
statement setting forth (a) the date of such meeting or the date by which such
action is to be taken, (b) a description of any resolution proposed for adoption
at such meeting on which such holders are entitled to vote or of such matter
upon which written consent is sought, and (c) instructions for the delivery of
proxies or consents.
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33
No vote or consent of the holders of the Preferred Partner Interests
will be required for the Partnership to redeem and cancel the Preferred Partner
Interests in accordance with this Agreement.
Notwithstanding that holders of Preferred Partner Interests are
entitled to vote or consent under any of the circumstances described above, any
of the Preferred Partner Interests that are owned by PECO or any entity owned
more than 50% by PECO, either directly or indirectly, shall not be entitled to
vote or consent and shall, for the purposes of such vote or consent, be treated
as if they were not outstanding.
(e) Mergers. The Partnership shall not consolidate, amalgamate, merge
with or into, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any corporation or other entity, except
with the approval of the General Partner and the holders of 66 2/3% in aggregate
stated liquidation preference of such outstanding Preferred Partner Interests or
as otherwise described below. The General Partner may, without the consent of
the holders of the Preferred Partner Interests, cause the Partnership to
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to, a
corporation, a limited liability company, limited partnership, trust or other
entity organized as such under the laws of any state of the United States of
America or the District of Columbia, provided that (i) such successor entity
either (1) expressly assumes all of the obligations of the Partnership under the
Preferred Partner Interests and the other obligations of the Partnership or (2)
substitutes for the Preferred Partner Interests other securities having
substantially the same terms as the Preferred Partner Interests (the "Successor
Securities") so long as the Successor Securities rank, as regards participation
in the profits or assets of the successor entity, at least as high as the
Preferred Partner Interests rank, as regards participation in the profits or
assets of the Partnership, (ii) PECO confirms its obligations under the
Guarantee with regard to the Successor Securities, if any are issued, (iii) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not cause the Preferred Partner Interests or Successor Securities to be
delisted by any national securities exchange or other organization on which the
Preferred Partner Interests are then listed, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Preferred Partner Interests or Successor Securities to be downgraded by any
"nationally recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Securities Act, (v)
such merger, consolidation, amalgamation, replacement, conveyance,
<PAGE>
34
transfer or lease does not adversely affect the powers, preferences and special
rights of holders of Preferred Partner Interests or Successor Securities in any
material respect, (vi) such successor entity has a purpose substantially
identical to that of the Partnership and (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease PECO has
received an opinion of counsel (which may be regular counsel to PECO or an
Affiliate, but not an employee thereof) experienced in such matters to the
effect that (1) holders of outstanding Preferred Partner Interests will not
recognize any gain or loss for Federal income tax proposes as a result of the
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
(2) such successor entity will be treated as a partnership for Federal income
tax purposes, (3) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, PECO and such successor entity will
be in compliance with the 1940 Act without registering thereunder as an
"investment company," and (4) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease will not adversely affect the limited
liability of holders of Preferred Partner Interests or Successor Securities.
ARTICLE XIV - Transfers
Section 14.01. Transfers of Preferred Partner Interests. Preferred
Partner Interests may be freely transferred by a Preferred Partner. No Interest
shall be transferred, in whole or in part, except in accordance with the terms
and conditions set forth in this Agreement. Any transfer or purported transfer
of any Interest not made in accordance with this Agreement shall be null and
void.
Section 14.02. Transfer of Certificates. The General Partner shall
provide for the registration of Certificates. Upon surrender for registration of
transfer of any Certificate, the General Partner shall cause one or more new
Certificates to be issued in the name of the designated transferee or
transferees. Every Certificate surrendered for registration of transfer shall be
accompanied by a written instrument of transfer and agreement to be bound by the
terms of this Agreement in form satisfactory to the General Partner duly
executed by the Preferred Partner or his attorney duly authorized in writing.
Each Certificate surrendered for registration of transfer shall be cancelled by
the General Partner. A transferee of a Certificate shall provide the Partnership
with a completed Form W-8 or such other documents or information as are
requested by the Partnership for tax reporting purposes and thereafter shall be
admitted to the Partnership as a Preferred Partner and shall be entitled to the
rights and subject to the obligations of a Preferred Partner hereunder upon the
receipt by such transferee of a Certificate.
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35
The transferor of a Certificate shall cease to be a limited partner of the
Partnership at the time that the transferee of the Certificate is admitted to
the Partnership as a Preferred Partner in accordance with this Section 14.02.
Section 14.03. Persons Deemed Preferred Partners. The Partnership may
treat the Person in whose name any Certificate shall be registered on the books
and records of the Partnership as the Preferred Partner and the sole holder of
such Certificate for purposes of receiving distributions and for all other
purposes whatsoever and, accordingly, shall not be bound to recognize any
equitable or other claims to or interest in such Certificate on the part of any
other Person, whether or not the Partnership shall have actual or other notice
thereof.
Section 14.04. Book Entry Interests. The Certificates, on original
issuance, will be issued in the form of a typewritten Certificate or
Certificates representing the Book Entry Interests to be delivered to The
Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the
Partnership. Such Certificates shall initially be registered on the books and
records of the Partnership in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Preferred Partner Interest Owner will receive a
definitive Certificate representing such Preferred Partner Interest Owner's
interests in such Certificate, except as provided in Section 14.06. Unless and
until definitive, fully registered Certificates (the "Definitive Certificates")
have been issued to the Preferred Partner Interest Owners pursuant to Section
14.06:
(a) The provisions of this Section shall be in full force and effect;
(b) The Partnership and the General Partner shall be entitled to deal
with the Clearing Agency for all purposes of this Agreement (including the
payment of distributions on the Certificates and receiving approvals, votes or
consents hereunder) as the Preferred Partner and the sole holder of the
Certificates and shall have no obligations to the Preferred Partner Interest
Owners;
(c) The rights of the Preferred Partner Interest Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Partner Interest Owners
and the Clearing Agency and/or the Clearing Agency Participants. Unless or until
the Definitive Certificates are issued pursuant to Section 14.06, the initial
Clearing Agency will make book entry transfers among the Clearing Agency
Participants and receive and transmit payments of distributions on the
Certificates to such Clearing Agency Participants;
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36
(d) To the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section shall
control; and
(e) Whenever this Agreement requires or permits actions to be taken
based upon approvals, votes or consents of a percentage of the Preferred
Partners, the Clearing Agency shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from the
Preferred Partner Interest Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial interests
in the Certificates and has delivered such instructions to the General Partner.
Section 14.05. Notices to Clearing Agency. Whenever a notice or other
communication to the Preferred Partners is required under this Agreement, unless
and until Definitive Certificates shall have been issued pursuant to Section
14.06, the General Partner shall give all such notices and communications
specified herein to be given to the Preferred Partners to the Clearing Agency,
and shall have no obligations to the Preferred Partner Interest Owners.
Section 14.06. Definitive Certificates. If (i) the Clearing Agency
elects to discontinue its services as securities depository and gives reasonable
notice to the Partnership, or (ii) the Partnership elects to terminate the book
entry system through the Clearing Agency, then the Definitive Certificates shall
be prepared by the Partnership. Upon surrender of the typewritten Certificate or
Certificates representing the Book Entry Interests by the Clearing Agency,
accompanied by registration instructions, the General Partner shall cause the
Definitive Certificates to be delivered to the Preferred Partner Interest Owners
in accordance with the instructions of the Clearing Agency. The General Partner
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Any Person receiving a Definitive Certificate in accordance with this Article
XIV shall be admitted to the Partnership as a Preferred Partner upon receipt of
such Definitive Certificate. The Clearing Agency or the nominee of the Clearing
Agency, as the case may be, shall cease to be a Limited Partner of the
Partnership under this Section 14.06 at the time that at least one additional
Person is admitted to the Partnership as a Preferred Partner in accordance with
this Section 14.06. The Definitive Certificates shall be printed, lithographed
or engraved or may be produced in any other manner as is reasonably acceptable
to the General Partner, as evidenced by its execution thereof. The General
Partner will appoint a registrar, transfer agent and paying agent for the
Preferred Partner Interests. Registration of transfers of Preferred Partner
Interests will be
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37
effected without charge by or on behalf of the Partnership, but upon payment of
any tax or other governmental charges which may be imposed in relation to it.
The Partnership will not be required to register or cause to be registered the
transfer of Preferred Partner Interests after such Preferred Partner Interests
have been called for redemption.
ARTICLE XV - General
Section 15.01. Power of Attorney. (a) The Class A Limited Partner and
each Preferred Partner constitutes and appoints the General Partner and the
Liquidating Trustee as its true and lawful representative and attorney-in-fact,
in its name, place and stead, to make, execute, sign, acknowledge and deliver or
file (i) all instruments, documents and certificates which may from time to time
be required by any law to effectuate, implement and continue the valid and
subsisting existence of the Partnership, (ii) all instruments, documents and
certificates that may be required to effectuate the dissolution and termination
of the Partnership in accordance with the provisions hereof and Delaware law,
(iii) all other amendments of this Agreement or the Certificate of Limited
Partnership and other filings contemplated by this Agreement including, without
limitation, amendments reflecting the withdrawal of the General Partner, or the
return, in whole or in part, of the contribution of any Partner, or the
addition, substitution or increased contribution of any Partner, or any action
of the Partners duly taken pursuant to this Agreement whether or not such
Partner voted in favor of or otherwise approved such action, and (iv) any other
instrument, certificate or document required from time to time to admit a
Partner, to effect its substitution as a Partner, to effect the substitution of
the Partner's assignee as a Partner or to reflect any action of the Partners
provided for in this Agreement.
(b) The powers of attorney granted herein (i) shall be deemed to be
coupled with an interest, shall be irrevocable and shall survive the death,
insanity, incompetency or incapacity (or, in the case of a Partner that is a
corporation, association, partnership, limited liability company or trust, shall
survive the merger, dissolution or other termination of existence) of the
Partner and (ii) shall survive the assignment by the Partner of the whole or any
portion of his Interest, except that where the assignee of the whole or any
portion thereof has furnished a power of attorney, this power of attorney shall
survive such assignment for the sole purpose of enabling the General Partner and
the Liquidating Trustee to execute, acknowledge and file any instrument
necessary to effect any permitted substitution of the assignee for the assignor
as a Partner and shall thereafter terminate. In the event that the
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38
appointment conferred in this Section 15.01 would not constitute a legal and
valid appointment by any Partner under the laws of the jurisdiction in which
such Partner is incorporated, established or resident, upon the request of the
General Partner or the Liquidating Trustee, such Partner shall deliver to the
General Partner or the Liquidating Trustee a properly authenticated and duly
executed document constituting a legal and valid power of attorney under the
laws of the appropriate jurisdiction covering the matters set forth in this
Section 15.01.
(c) The General Partner may require a power of attorney to be executed
by a transferee of a Partner as a condition of its admission as a substitute
Partner.
Section 15.02. Waiver of Partition. Each Partner hereby irrevocably
waives any and all rights that it may have to maintain an action for partition
of any of the Partnership's property or assets.
Section 15.03. Notices. Any notice permitted or required to be given
hereunder shall be in writing and shall be deemed given (i) on the day the
notice is first mailed to a Partner by first class mail, postage prepaid, or
(ii) on the date it was delivered in person to a Partner, receipt acknowledged,
at its address appearing on the books and records of the Partnership. Another
address may be designated by a Partner by such Partner giving notice of its new
address as provided in this Section 15.03.
Section 15.04. Entire Agreement. This Agreement, including the
exhibits annexed hereto and incorporated by reference herein, contains the
entire agreement of the parties hereto and supersedes all prior agreements and
understandings, oral or otherwise, among the parties hereto with respect to the
matters contained herein.
Section 15.05. Waivers. Except as otherwise expressly provided herein,
no purported waiver by any party of any breach by another party of any of his
obligations, agreements or covenants hereunder, or any part thereof, shall be
effective unless made in a writing executed by the party or parties sought to be
bound thereby, and no failure to pursue or elect any remedy with respect to any
default under or breach of any provision of this Agreement, or any part hereof,
shall be deemed to be a waiver of any other subsequent similar or different
default or breach, or any election of remedies available in connection
therewith, nor shall the acceptance or receipt by any party of any money or
other consideration due him under this Agreement, with or without knowledge of
any breach hereunder, constitute a
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39
waiver of any provision of this Agreement with respect to such or any other
breach.
Section 15.06. Headings. The section headings herein contained have
been inserted only as a matter of convenience of reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any such provisions.
Section 15.07. Separability. Each provision of this Agreement shall be
considered to be separable, and if, for any reason, any such provision or
provisions, or any part thereof, is determined to be invalid and contrary to any
existing or future applicable law, such invalidity shall not impair the
operation of, or affect, those portions of this Agreement which are valid, and
this Agreement shall be construed and enforced in all respects as if such
invalid or unenforceable provision or provisions had been omitted.
Section 15.08. Contract Construction. Whenever the content of this
Agreement permits, the masculine gender shall include the feminine and neuter
genders, and reference to singular or plural shall be interchangeable with the
other. References in this Agreement to particular sections of the Code or to
provisions of the Delaware Act shall be deemed to refer to such sections or
provisions as they may be amended after the date of this Agreement.
Section 15.09. Counterparts. This Agreement may be executed in one or
more counterparts and each of such counterparts for all purposes shall be deemed
to be an original, but all of such counterparts, when taken together, shall
constitute but one and the same instrument, binding upon all parties hereto,
notwithstanding that all of such parties may not have executed the same
counterpart.
Section 15.10. Benefit. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be deemed for the benefit of creditors or any other
Persons, nor shall it be deemed to permit any assignment by a Partner of any of
its rights or obligations hereunder except as expressly provided herein.
Section 15.11. Further Actions. Each of the Partners hereby agrees
that it shall hereafter execute and deliver such further instruments and do such
further acts and things as may be required or useful to carry out the intent and
purposes of this Agreement and as are not inconsistent with the terms hereof.
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40
Section 15.12. Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of Delaware,
without regard to conflicts of laws.
Section 15.13. Amendments. Except as otherwise expressly provided
herein or as otherwise required by law, this Agreement may only be amended by a
written instrument executed by the General Partner provided, however, that any
amendment which would adversely affect the powers, preferences or special rights
of any series of Preferred Partner Interests may be effected only as permitted
by the terms of such series of Preferred Partner Interests.
<PAGE>
41
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL PARTNER:
PECO ENERGY CAPITAL CORP.
------------------------------
Name:
Title:
CLASS A LIMITED PARTNER:
PECO ENERGY COMPANY
------------------------------
Name:
Title:
<PAGE>
A-1
Exhibit A
Certificate Evidencing Preferred Partner Interests
of
PECO Energy Capital, L.P.
__% Cumulative Monthly Income Preferred Securities
Series __ (liquidation preference
$25 per Preferred Security)
PECO Energy Capital, L.P., a Delaware limited partnership (the
"Partnership"), hereby certifies that Cede & Co. (the "Holder") is the
registered owner of ___________ (_________) fully paid Preferred Securities of
the Partnership designated the __% Cumulative Monthly Income Preferred
Securities, Series __ (liquidation preference $25 per Preferred Security) (the
"Series __ Preferred Securities") representing preferred limited partner
interests in the Partnership transferable on the books and records of the
Partnership, in person or by a duly authorized attorney, upon surrender of this
Certificate duly endorsed and in proper form for transfer. The powers,
preferences and special rights and limitations of the Series __ Preferred
Securities are set forth in, and this Certificate and the Series __ Preferred
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Limited Partnership
Agreement dated as of July 25, 1994 of the Partnership as the same may, from
time to time, be amended (the "Partnership Agreement") authorizing the issuance
of
<PAGE>
A-2
the Series __ Preferred Securities and determining, along with any actions of
the General Partner of the Partnership as authorized under the Partnership
Agreement, the preferred, deferred and other special rights and restrictions,
regarding distributions, voting, redemption and otherwise and other matters
relating to the Series __ Preferred Securities. The Partnership will furnish a
copy of the Partnership Agreement to the Holder without charge upon written
request to the Partnership at its principal place of business or registered
office. Capitalized terms used herein but not defined shall have the meaning
given them in the Partnership Agreement. The Holder is entitled to the benefits
of the Payment and Guarantee Agreement of PECO Energy Company, dated as of
______, 1994 relating to the Preferred Securities (the "Guarantee") and of the
Indenture between PECO Energy Company and Meridian Trust Company, dated as of
July 1, 1994 (the "Indenture"), under and pursuant to which the related series
of Subordinated Debentures are issued and outstanding, in either case to the
extent provided therein. The Holder is further entitled to enforce such rights
of the Partnership under the Indenture to the extent provided therein and in the
Partnership Agreement. The Partnership will furnish a copy of the Guarantee and
Indenture to the Holder without charge upon written request to the Partnership
at its principal place of business or registered office.
The Holder, by accepting this Certificate, is deemed to have (i)
agreed that the Subordinated Debentures issued pursuant
<PAGE>
A-3
to the Indenture are subordinate and junior in right of payment to all general
liabilities of PECO Energy Company as and to the extent provided in the
Indenture and (ii) agreed that the Guarantee is subordinate and junior in right
of payment to all general liabilities of PECO Energy Company. Upon receipt of
this Certificate, the Holder is admitted to the Partnership as a Preferred
Partner, is bound by the Partnership Agreement and is entitled to the benefits
thereunder.
IN WITNESS WHEREOF, the Partnership has executed this Certificate this
____ day of ________________, 1994.
PECO ENERGY CAPITAL, L.P.
By: PECO Energy Capital Corp.,
its General Partner
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
Exhibit 10-8
STOCK PURCHASE AGREEMENT
BETWEEN
PECO ENERGY COMPANY
AND
DELMARVA POWER & LIGHT COMPANY
May 24, 1994
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
1.1. The Sale
1.2. Consideration
1.3. Calculation of Adjustments
1.4. Payment of Adjustment to Purchase Price
ARTICLE II
2.1. Time and Place of Closing
2.2. Deliveries by PECO Energy
2.3. Deliveries by the Buyer
ARTICLE III
3.1. Organization; Qualification
3.2. The Company's Capitalization
3.3. Title to Stock
3.4. Authority Relative to this Agreement
3.5. Consents and Approvals; No Violation
3.6. Reports
3.7. Financial Statements
3.8. Undisclosed Liabilities
3.9. Absence of Certain Changes or Events
3.10. Title and Related Matters
3.11. Leases
3.12. Insurance
3.13. Environmental Matters
3.14. Labor Matters
3.15. ERISA; Benefit Plans
3.16. Certain Contracts and Arrangements
3.17. Legal Proceedings, etc.
3.18. Permits
3.19. Regulation as a Utility
3.20. Taxes
3.21. Disclosure
ARTICLE IV
4.1. Organization
4.2. Authority Relative to this Agreement
4.3. Consents and Approvals; No Violation
4.4. Regulation as a Utility
4.5. Acquisition of Stock for Investment
4.6. Financing
ARTICLE V
5.1. Conduct of Business of the Company
5.2. Access to Information
5.3. Expenses
5.4. Further Assurances
5.5. Public Statements
5.6. Consents and Approvals
5.7. Fees and Commissions
5.8. Sales and Transfer Taxes
5.9. Supplements to Schedules
5.10. Employees
5.11. No Negotiations
5.12. Post-Closing Assistance
5.13. Record Retention Procedures
5.14. Section 338(h)(10) Election
5.15. Other Tax Matters
5.16. Transfer of Certain Assets, Properties and
Other Items
5.17. Termination of Tax Sharing Agreements
5.18. Power Purchase Arrangements
ARTICLE VI
6.1. Conditions to Each Party's Obligations to
Effect the Transactions Contemplated
Hereby
6.2. Conditions to Obligations of the Buyer
6.3. Conditions to Obligations of PECO Energy
ARTICLE VII
7.1. Termination
7.2. Procedure and Effect of Termination
ARTICLE VIII
8.1. Indemnification
8.2. Defense of Claims
8.3. Tax Indemnification
8.4. Tax Exclusivity
ARTICLE IX
9.1. Amendment and Modification
9.2. Waiver of Compliance; Consents
9.3. Survival of Representations and Warranties
9.4. Indemnification and Adjustment Payments
9.5. Notices
9.6. Assignment
9.7. Governing Law
9.8. Counterparts
9.9. Interpretation
9.10. Entire Agreement
9.11. No Third Party Beneficiary Rights
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 24, 1994,
between PECO Energy Company, a Pennsylvania corporation ("PECO
Energy"), and Delmarva Power & Light Company, a Delaware and Virgin-
ia corporation (the "Buyer").
WHEREAS, the Buyer desires to purchase, and PECO
Energy desires to sell, all of the outstanding common stock (the
"Company Common Stock") of the Conowingo Power Company, a Maryland
corporation (the "Company") upon the terms and conditions hereinaf-
ter set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual cove-
nants, representations, warranties and agreements hereinafter set
forth, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
SALE OF STOCK AND TERMS OF PAYMENT
1.1 The Sale. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, at the
Closing (as hereinafter defined) PECO Energy will sell, assign,
transfer and deliver to the Buyer, and the Buyer will purchase and
acquire from PECO Energy, the Company Common Stock.
1.2 Consideration. (a) Upon the terms and subject
to the satisfaction of the conditions contained in this Agreement,
in consideration of the aforesaid sale, assignment, transfer and
delivery of the Company Common Stock, at the Closing the Buyer will
pay or cause to be paid to PECO Energy an amount equal to
$150,000,000.00 (the "Purchase Price") on the Closing Date (as
hereinafter defined).
(b) On the 90th day after the Closing Date (the "Ad-
justment Date"), the Purchase Price will be increased or decreased
by the sum of the adjustments set forth on Annex 1 hereto (the
"Adjustment Amount").
(c) The Buyer will pay the Purchase Price by delivery
of funds which are immediately available or, upon the mutual agree-
ment of the parties hereto, in a combination of immediately avail-
able funds and assets of the Buyer.
1.3 Calculation of Adjustments. (a) As promptly as
practicable after the Closing Date, PECO Energy will deliver to the
Buyer a copy of a balance sheet of the Company as of the Closing
Date (the "Closing Balance Sheet"), together with PECO Energy's
calculation of the Adjustment Amount. The parties hereto agree that
the Closing Balance Sheet will be prepared in accordance with
generally accepted accounting principles on a basis consistent with
the presentations in the Company Balance Sheet and the Company's
1993, 1992 and 1991 balance sheets, respectively (such presentation
is referred to herein as the "PECO Energy Closing Balance Sheet
Preparation Method.")
(b) Within twenty business days after the Buyer's re-
ceipt of the Closing Balance Sheet, the Buyer will provide PECO
Energy with written notice indicating whether the Buyer agrees or
disagrees with PECO Energy's calculation of the Adjustment Amount.
If the Buyer agrees with PECO Energy's calculation of the Adjustment
Amount, or if the Buyer fails to deliver to PECO Energy such written
notice within such 20-day period, PECO Energy's calculation of the
Adjustment Amount will be deemed to be conclusive, final and binding
on the parties to this Agreement.
(c) Within five business days after PECO Energy's re-
ceipt of any notice of the Buyer's disagreement with PECO Energy's
calculation of the Adjustment Amount, PECO Energy and the Buyer will
begin good faith negotiations to resolve such disagreement. If PECO
Energy and the Buyer are able to resolve such disagreement within
ten business days after such negotiations begin, PECO Energy's
calculation of the Adjustment Amount will be adjusted accordingly to
reflect such resolution and, as adjusted, will be deemed to be
conclusive, final and binding on the parties to this Agreement. If
PECO Energy and the Buyer are unable to resolve such disagreement
within ten business days after such negotiations begin, such dis-
agreement will be submitted to a nationally recognized independent
auditing firm (other than the regular auditing firms for PECO
Energy, any subsidiary thereof or the Buyer) that PECO Energy and
the Buyer may agree upon (the "Settlement Auditor") for resolution.
PECO Energy and the Buyer will cooperate with the Settlement Auditor
and will proceed in good faith to cause the Settlement Auditor to
resolve such disagreement on or before the Adjustment Date. The
fees of the Settlement Auditor shall be borne by PECO Energy and the
Buyer with each party bearing a portion of such fees equal to (i)
the total fees multiplied by (ii) a fraction, (A) the numerator of
which is the difference between such party's determination of the
Adjustment Amount and the Settlement Auditor's determination of the
Adjustment Amount and (B) the denominator of which is the difference
between PECO Energy's and the Buyer's determination of the Adjust-
ment Amount.
(d) The Settlement Auditor, in its sole discretion,
will determine (i) the nature and extent of the participation by
PECO Energy, the Buyer, and their respective independent auditors in
connection with the resolution of any disagreement submitted to the
Settlement Auditor, (ii) the nature and extent of information that
PECO Energy and the Buyer may submit to the Settlement Auditor for
consideration in connection with such resolution and (iii) the
personnel of the Settlement Auditor who will review such information
and resolve such disagreement. All elements of the Adjustment
Amount that are disputed by PECO Energy and the Buyer shall be sub-
ject to review and recalculation by the Settlement Auditor. In any
such calculation of the Adjustment Amount, the Settlement Auditor
shall comply with the PECO Energy Closing Balance Sheet Preparation
Method. Notwithstanding the foregoing sentence, in any determina-
tion of the Adjustment Amount by the Settlement Auditor, the result
so obtained shall be no greater or less than the range of amounts
proposed by PECO Energy and the Buyer, respectively. The Settlement
Auditor's resolution of any such dispute will be reflected in a
written report which will be delivered promptly to, and will be
final and binding upon, PECO Energy and the Buyer. PECO Energy's
calculation of the Adjustment Amount will be adjusted accordingly to
reflect such resolution and, as adjusted, will be deemed to be
conclusive, final and binding on the parties to this Agreement.
(e) From the Closing Date to the Adjustment Date, the
Buyer will give to the Settlement Auditor, PECO Energy and their
respective representatives such access during ordinary business
hours to the records and personnel of the Company as is necessary to
prepare the Closing Balance Sheet and the calculation of the Adjust-
ment Amount.
1.4 Payment of Adjustment to Purchase Price. On the
Adjustment Date, or if the resolution of the calculation of the
Adjustment Amount pursuant to Section 1.3 has not occurred by such
date, as soon as is reasonably possible following a conclusive,
final and binding determination of the Adjustment Amount pursuant to
Section 1.3, but no later than five (5) business days thereafter,
(a) if the Adjustment Amount is payable to the Buyer, then PECO
Energy shall pay to the Buyer such amount, and (b) if the Adjustment
Amount is payable to PECO Energy, then the Buyer shall pay to PECO
Energy such amount. Any such payment shall be made by wire transfer
of immediately available funds to such account as shall have been
designated in writing by the recipient thereof, with interest on the
amount due from the Closing Date to the date of payment at a rate
calculated based on a per annum rate computed on the basis of a 365
day year and equal to the average of the high and low bid rates for
federal funds on the Closing Date as such bid rates were published
in The Wall Street Journal (Eastern Edition).
ARTICLE II
THE CLOSING
2.1. Time and Place of Closing. Upon the terms and
subject to the satisfaction of the conditions contained in this
Agreement, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Skadden,
Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, at 9:00 A.M. (local time) on the first business day following
the date on which all of the conditions to each party's obligations
hereunder have been satisfied or waived; or at such other place or
time as the parties may agree. The date and time at which the
Closing actually occurs is hereinafter referred to as the "Closing
Date."
2.2. Deliveries by PECO Energy. At the Closing, PECO
Energy will deliver the following to the Buyer:
(a) Stock certificates representing all of the
Company Common Stock, duly executed in blank or accompanied by duly
executed instruments of transfer, and any other documents that are
necessary to transfer to the Buyer good and marketable title to the
Company Common Stock;
(b) The stock book, stock ledger, minute book and
corporate seal of the Company;
(c) The opinion and certificate
contemplated by Section 6.2; and
(d) Such other documents, instruments and writ-
ings as are required to be delivered by PECO Energy at or prior to
the Closing Date pursuant to this Agreement or otherwise required in
connection herewith or as may be reasonably requested by the Buyer.
2.3. Deliveries by the Buyer. At the Closing, the
Buyer will deliver the following to PECO Energy:
(a) The Purchase Price by (i) interbank transfer
of immediately available funds or (ii) such other means as are
agreed upon by PECO Energy and the Buyer;
(b) The opinion and certificate
contemplated by Section 6.3; and
(c) Such other documents, instruments and writ-
ings as are required to be delivered by the Buyer at or prior to the
Closing Date pursuant to this Agreement or otherwise required in
connection herewith or as may be reasonably requested by PECO
Energy.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PECO ENERGY
PECO Energy represents and warrants to the Buyer as
follows:
3.1. Organization; Qualification.
(a) PECO Energy is a corporation duly organized,
validly existing and in good standing under the laws of the Common-
wealth of Pennsylvania and has all requisite power to own and to
dispose of the Company Common Stock.
(b) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Maryland, and has all requisite corporate power and authority to
own, lease, and operate its properties and to carry on its business
as now being conducted. The Company is duly qualified or licensed
to do business as a foreign corporation and is in good standing in
each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualifi-
cation necessary, except in each case in those jurisdictions where
the failure to be so duly qualified or licensed and in good standing
would not in the aggregate have a Material Adverse Effect (as
hereinafter defined). Schedule 3.1 sets forth, as of the date of
this Agreement, each jurisdiction in which the Company is qualified
to do business as a foreign corporation. PECO Energy has heretofore
delivered to the Buyer complete and correct copies of the Certifi-
cate of Incorporation and Bylaws as currently in effect of the
Company.
The term "Material Adverse Effect" as used in this
Agreement, shall mean a material adverse effect on the business,
results of operations or financial condition of the Company.
For purposes of this Agreement, the loss of Employees
(as defined in Section 5.10 hereof) pursuant to the Voluntary Re-
tirement Incentive Program ("VRIP") or the Voluntary Separation
Incentive Program ("VSIP") is deemed not to be a "Material Adverse
Effect."
(c) The Company does not own the majority of the
outstanding voting capital stock or other interest of any corpora-
tion, partnership, proprietorship, trust, association or other
business organization.
3.2. The Company's Capitalization. The authorized
capital stock of the Company consists of 100,000 shares of common
stock, 51,143 shares of which are issued and outstanding and owned
by PECO Energy. All outstanding shares of Company Common Stock are
duly authorized, validly issued, fully paid and nonassessable.
Other than this Agreement, there is no subscription, option, war-
rant, call, right, agreement or commitment relating to the issuance,
sale, delivery or transfer by the Company or PECO Energy (including
any right of conversion or exchange under any outstanding security
or other instrument) of any capital stock of the Company. There are
no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any outstanding shares of capital stock
of the Company.
3.3. Title to Stock. PECO Energy owns the Company
Common Stock, free and clear of all pledges, security interests,
liens, charges, encumbrances, claims, options or limitations affect-
ing its abilities to vote such shares or to transfer such shares to
the Buyer. At the Closing, the Buyer will acquire good title to the
Company Common Stock, free and clear of all pledges, security
interests, liens, charges, encumbrances, claims, options or limita-
tions of any nature whatsoever.
3.4. Authority Relative to this Agreement. PECO
Energy has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of PECO Energy and
no other corporate proceedings on the part of PECO Energy are
necessary to authorize this Agreement or to consummate the transac-
tions contemplated hereby. This Agreement has been duly and validly
executed and delivered by PECO Energy, and assuming that this
Agreement constitutes a valid and binding agreement of Buyer,
subject to the receipt of the PECO Energy Required Regulatory
Approvals (as hereinafter defined), and the Buyer Required Regulato-
ry Approvals (as hereinafter defined), constitutes a valid and bind-
ing agreement of PECO Energy, enforceable against PECO Energy in
accordance with its terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to enforcement of creditors'
rights generally or general principles of equity.
3.5. Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 3.5, and other
than obtaining the PECO Energy Required Regulatory Approvals and the
Buyer Required Regulatory Approvals, neither the execution and
delivery of this Agreement by PECO Energy nor the performance by
PECO Energy of its obligations under this Agreement will (i) con-
flict with or result in any breach of any provision of the Articles
of Incorporation or Bylaws of PECO Energy or the Certificate of
Incorporation or Bylaws of the Company, (ii) require any consent,
approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, except (a) where the
failure to obtain any such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not have,
in the aggregate, a Material Adverse Effect or (b) for those re-
quirements which become applicable to PECO Energy as a result of the
specific regulatory status of the Buyer (or any of its affiliates)
or as a result of any other facts that specifically relate to the
business or activities in which the Buyer (or any of its affiliates)
is or proposes to be engaged; (iii) result in a default (or give
rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, franchise, permit, concession,
contract, license, agreement or other instrument or obligation to
which PECO Energy or the Company is a party or by which PECO Energy
or the Company, or any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been
obtained or which would not have, in the aggregate, a Material Ad-
verse Effect or a material adverse effect on the ability of PECO
Energy to perform its obligations under this Agreement; or (iv) vio-
late any law, order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, or any of its assets, which
violation together with all other violations would have a Material
Adverse Effect.
(b) Except as set forth in Schedule 3.5 and
except for (i) any required approvals under the Federal Power Act of
1935 (the "Federal Power Act"), (ii) (A) application by PECO Energy
to and an order by the Maryland Public Service Commission (the
"MPSC") approving the transactions contemplated by this Agreement
and (B) the approval, if required, of the Pennsylvania Public
Utility Commission and any municipalities or other local govern-
mental bodies in the State of Maryland and Commonwealth of Pennsyl-
vania, in the case of each of (A) and (B), pursuant to the Public
Service Commission Law of Maryland and the Public Utility Code of
Pennsylvania, respectively (the "Utility Codes"), (iii) the approv-
al, if required, of the Securities and Exchange Commission (the
"SEC") pursuant to the Public Utility Holding Company Act of 1935,
as amended (the "Holding Company Act"), (iv) the filings by PECO
Energy and the Buyer required by Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and
(v) all approvals of any governmental authority, including the
Federal Energy Regulatory Commission (the "FERC"), with respect to
the transactions contemplated by the parties in connection with the
Power Purchase Agreement (as defined herein) (the applications,
filings and approvals referred to in clauses (i) through (v) are
collectively referred to as the "PECO Energy Required Regulatory
Approvals"), no declaration, application, filing or registration
with, or notice to, or authorization, consent or approval of any
governmental or regulatory body or authority is necessary for the
consummation by PECO Energy of the transactions contemplated hereby,
other than such declarations, applications, filings, registrations,
notices, authorizations, consents or approvals which, if not ob-
tained or made, will not, in the aggregate, have a Material Adverse
Effect.
3.6. Reports. Since January 1, 1991, PECO Energy and
the Company, pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the applicable State and Commonwealth public
utility laws, the Federal Power Act and the Holding Company Act,
have filed or caused to be filed with the SEC, the applicable state
or local utility commissions or regulatory bodies, or the FERC, as
the case may be, all material forms, statements, reports and docu-
ments (including all exhibits, amendments and supplements thereto)
required to be filed by them with respect to the business and opera-
tions of the Company under each of the Securities Act, the Exchange
Act, the applicable Utility Codes, the Federal Power Act and the
Holding Company Act and the respective rules and regulations there-
under, all of which complied in all material respects with all
applicable requirements of the appropriate act and the rules and
regulations thereunder in effect on the date each such report was
filed.
3.7. Financial Statements. PECO Energy has previous-
ly furnished to the Buyer (i) audited balance sheets of the Company
as of December 31, 1991, 1992 and 1993, and (ii) the related audited
statements of income and retained earnings and changes in financial
position of the Company for each of the fiscal years then ended, to-
gether with the respective reports thereon of Coopers & Lybrand, the
Company's independent auditors. The balance sheet of the Company as
of December 31, 1993 is hereinafter referred to as the "Company
Balance Sheet." The Company has also furnished an unaudited balance
sheet of the Company for the quarter ended March 31, 1994, together
with the related unaudited statement of income. Each of the balance
sheets included in the financial statements referred to in this Sec-
tion 3.7 (including the related notes thereto) presents fairly the
financial position of the Company as of their respective dates, and
the other related statements included therein (including the related
notes thereto) present fairly the results of operations and changes
in financial position for the periods then ended, all in conformity
with generally accepted accounting principles applied on a consis-
tent basis, except as otherwise noted therein.
3.8. Undisclosed Liabilities. Except as set forth in
Schedule 3.8, the Company has no liability or obligation, secured or
unsecured (whether absolute, accrued, contingent or otherwise, and
whether due or to become due), which are not accrued or reserved
against in the Company Balance Sheet or disclosed in the notes
thereto in accordance with generally accepted accounting principles,
except those which either were incurred in the ordinary course of
business, whether before or after the date of the Company Balance
Sheet, or those which in the aggregate would not have a Material
Adverse Effect.
3.9. Absence of Certain Changes or Events. Except
(i) as set forth in Schedule 3.9, or in the reports, schedules,
registration statements and definitive proxy statements filed by the
Company or PECO Energy with respect to the Company since December
31, 1990 (the "PECO Energy SEC Reports") and (ii) as otherwise con-
templated by this Agreement, since the date of the Company Balance
Sheet there has not been: (a) any Material Adverse Effect; (b) any
declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock, property or any combination
thereof) in respect of the Company Common Stock, or any redemption
or other acquisition by the Company of any shares of capital stock
of the Company, or any payment by the Company to PECO Energy; (c)
any damage, destruction or casualty losses, whether covered by
insurance or not, which, in the aggregate, had a Material Adverse
Effect; (d) (i) any increase in the rate or terms of compensation or
benefits payable or to become payable by the Company to its direc-
tors, officers or employees, except increases occurring in the
ordinary course of business and consistent with past practice (which
shall include normal periodic performance reviews and related
compensation and benefit increases) and except pursuant to the VRIP
or the VSIP according to the terms of such programs on the date
hereof, (ii) any adoption, amendment or termination of any Company
Plan, except any adoption, amendment or termination occurring in the
ordinary course of business and consistent with past practice or to
comply with any applicable law or regulation or except pursuant to
the VRIP or the VSIP; (e) any entry into any agreement, commitment
or transaction (including without limitation any borrowing, capital
expenditure or capital financing) or the incurrence of any obliga-
tion or liability, whether absolute, accrued, contingent or other-
wise and whether due or to become due, by the Company in excess of
$250,000, except agreements, commitments, transactions, obligations
or liabilities entered into or incurred in the ordinary course of
business and consistent with past practice or as contemplated here-
in; (f) any material change by PECO Energy or the Company, with re-
spect to the Company, in accounting methods, principles or practices
except as required by generally accepted accounting principles; (g)
any strike, concerted work stoppage or slow-down or any material
charges or complaints of unfair labor practices related to the
Company filed with any authority; or (h) any written communication
to PECO Energy or the Company from any customers or suppliers or
agencies regulating the Company which, in the aggregate, would
reasonably lead PECO Energy or the Company to expect a Material
Adverse Effect therefrom.
3.10. Title and Related Matters. Schedule 3.10 sets
forth all of the real property owned in fee by the Company. Except
as set forth in Schedule 3.10 and except for Permitted Exceptions
(as defined in Section 9.9), the Company has good and marketable
title to all of the real property listed on Schedule 3.10 and all
other assets which it purports to own that are reflected in the
Company Balance Sheet (other than those which have been disposed of
since the date thereof in the ordinary course of business), free and
clear of all security interests, liens, claims, charges, or other
encumbrances. There is no pending condemnation, expropriation,
eminent domain or similar proceeding affecting all or any portion of
the real property listed on Schedule 3.10 and to PECO Energy's
knowledge, no such proceeding is threatened or contemplated.
3.11. Leases. Schedule 3.11 lists, as of the date of
this Agreement, all real property leases under which the Company is
a lessee or lessor and which (i) provide for annual payments of more
than $100,000 or (ii) are material to the business, operations or
financial condition of the Company. Except as set forth in Schedule
3.11, all such leases are valid, binding and enforceable in accor-
dance with their terms, and are in full force and effect; there are
no existing material defaults by the Company thereunder; no event
has occurred which (whether with or without notice, lapse of time or
both) would constitute a material default thereunder.
3.12. Insurance. Except as set forth in Schedule
3.12, all material policies of fire, liability, workmen's compensa-
tion and other forms of insurance owned or held by and insuring the
Company are in full force and effect, all premiums with respect
thereto covering all periods up to and including the date as of
which this representation is being made have been paid (other than
retrospective premiums which may be payable with respect to compre-
hensive general liability and workmen's compensation insurance
policies), and no notice of cancellation or termination has been
received with respect to any such policy which was not replaced on
substantially similar terms prior to the date of such cancellation.
Such policies are valid, outstanding and enforceable policies and
will not in any way be affected by, or terminate or lapse by reason
of, the transactions contemplated by this Agreement. The insurance
policies to which the Company is a party are sufficient for compli-
ance with all material requirements of law and of all material
agreements to which the Company is a party. Except as described in
Schedule 3.12, as of the date of this Agreement the Company has not
been refused any insurance with respect to its assets or operations
nor has its coverage been limited by any insurance carrier to which
it has applied for any such insurance or with which it has carried
insurance during the last twelve months.
3.13. Environmental Matters. (a) For purposes of
this Section 3.13:
(i) "Environmental Law" means any Federal, state
or local statute, regulation or ordinance, and any
permits and legally binding decisions, orders, direc-
tives, rules and regulations of federal, state and
local governmental agencies and authorities thereun-
der, relating to the protection of any water or water
vapor, any land, including land surface or subsurface,
air, fish, wildlife, biota and all other natural re-
sources, and/or governing the use, storage, treatment,
generation, transportation, processing, handling,
production, clean-up or disposal of Hazardous Materi-
als.
(ii) "Hazardous Material" means, without limitation,
any flammable, explosive or radioactive material,
radon, asbestos, urea-formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum
products, methane and any other material or substance
which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "pollutant,"
"toxic waste" or "toxic substance" under any provision
of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et
seq.), or any other applicable Environmental Law or any
regulations promulgated pursuant thereto.
(iii) "Release" means any release, spill, emis-
sion, leaking, pumping, injection, deposit, disposal,
discharge or dispersal, into the environment, at or
from any property owned or operated by the Company or
related to Hazardous Materials generated by the Compa-
ny.
(iv) "Remedial Action" means all actions required
to (x) clean up, remove or treat any Hazardous Materi-
al; (y) prevent the Release or threat of Release, or
minimize the further Release of any Hazardous Material
so it does not endanger or threaten to endanger public
health or welfare or the environment; or (z) perform
pre-remedial studies and investigations or post-reme-
dial monitoring and care directly related to or in
connection with any such remedial action.
(b) With respect to applicable Environmental Laws, except as
set forth in Schedule 3.13:
(i) The Company is in substantial compliance with
all applicable Environmental Laws;
(ii) Under applicable Environmental Laws, the
Company has obtained or has submitted timely appli-
cations for all environmental permits required for the
operation of its businesses as presently conducted on
the date hereof;
(iii) Neither PECO Energy, the Company nor any
other subsidiary of PECO Energy has received any writ-
ten communication with any governmental authority or
other party with respect to (A) the actual or alleged
violation by the Company of any Environmental Laws,
(B) any actual or proposed Remedial Action relating to
the Company or (C) any Release or threatened Release
by the Company of a Hazardous Material;
(iv) To PECO Energy's knowledge, there are no un-
derground storage tanks, active or abandoned, at any
property owned, operated or leased by the Company;
(v) No written notification of a Release of a
Hazardous Material has been filed by or on behalf of
the Company with respect to any property when owned,
operated or leased by the Company. To PECO Energy's
knowledge, no property of the Company is listed or
proposed for listing on the National Priority List
promulgated pursuant to CERCLA or on any similar state
list of sites requiring investigation or clean-up;
(vi) To PECO Energy's knowledge, the Company is
not required by any applicable Environmental Law to
place any notice or restriction relating to the pres-
ence or disposal of Hazardous Material in the deed to
any property owned by it; and
(vii) To PECO Energy's knowledge, no Release of
any polychlorinated biphenyls, and no Release of pe-
troleum or petroleum products, other than minor spills
and leaks occurring in the ordinary course of busi-
ness, has occurred at, on or under any property now or
when formerly owned, operated or leased by the Compa-
ny, except for Releases that have been remediated in
accordance with applicable Environmental Laws.
3.14. Labor Matters. The Company is neither party to
nor subject to any labor union or collective bargaining agreements.
Except to the extent set forth in Schedule 3.14 and except for such
matters as will not individually have a Material Adverse Effect: (a)
the Company is in compliance with all applicable laws, regulations,
rules, and orders respecting employment and employment practices,
wages and hours, and any terms or conditions of employment; (b)
there is no unfair labor practice charge or complaint pending
against the Company before the National Labor Relations Board; (c)
there is no charge of unlawful discrimination pending against the
Company before the Equal Employment Opportunity Commission or any
State fair employment practices agency; (d) there is no audit or
other investigation of the Company being conducted by the Office of
Federal Contract Compliance Programs of the United States Department
of Labor; (e) there is no investigation of the Company being con-
ducted by the Wage and Hour Division of the United States Department
of Labor; (f) there is no labor strike, dispute, work slowdown or
stoppage actually pending or threatened against or affecting the
Company, and the Company has not experienced any primary work
stoppage since December 31, 1991; (g) no representation petition
respecting any employees of the Company has been filed with the
National Labor Relations Board; and (h) there is no proceeding or
litigation of any sort whatsoever pending or threatened against the
Company involving employees of the Company and their wages, hours,
or any terms or conditions of their employment (including any
benefits relating thereto but excluding any claims for benefits made
in the ordinary course of business and consistent with past practice
under the Company's employee benefit plans).
3.15. ERISA; Benefit Plans.
(a) There is no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"), with respect to any Plan (as hereinafter
defined) that is subject to such Sections. Each Company Plan (as
hereinafter defined), except for such matters as will not, in the
aggregate, have a Material Adverse Effect, is and has been operated
in compliance in all respects with the presently applicable provi-
sions of ERISA and the Code. The Company has not incurred any
liability under Title IV of ERISA to the Pension Benefit Guaranty
Corporation in connection with any Plan which is subject to Title IV
of ERISA which has not been fully paid prior to the date hereof,
other than liability for premiums due the Pension Benefit Guaranty
Corporation (the "PBGC"), which premiums have been or will be paid
when due. Except as set forth in Schedule 3.15, the Internal Reve-
nue Service has issued, with respect to each Company Plan intended
to be tax qualified under Sections 401(a) and 501(a) of the Code, a
letter determining that such Plan is qualified and its related trust
is exempt from United States Federal Income Tax under Sections
401(a) and 501(a) of the Code, respectively, and there has been no
occurrence since the date of any such determination letter which has
adversely affected such qualification. Except as set forth in
Schedule 3.15, no Plan is a "multiple employer plan" (within the
meaning of Section 413(c) of the Code) or a "multiemployer plan" (as
defined in Section 3(37) of ERISA), and no withdrawal liability has
been incurred by or asserted against the Company with respect to any
employee pension benefit plan which is a multiple employer plan or a
multiemployer plan.
(b) Schedule 3.15 lists all Company Plans. Accurate
and complete copies of all Company Plans and the summary descrip-
tions, the most recent annual reports on Internal Revenue Service
Form 5500 and actuarial reports, if applicable, have been previously
provided to the Buyer.
(c) Each Plan that is a "group health plan" (as
defined in Section 4980B of the Code) has been operated in compli-
ance with Section 4980B of the Code at all times, except for such
matters as will not have a Material Adverse Effect. Except as
provided in Schedule 3.15 and except as required by Section 4980B of
the Code, the Company does not maintain any plan that provides
medical benefits or life insurance benefits in respect of any em-
ployees or former employees of the Company beyond their retirement.
Except as set forth in Schedule 3.15, no Plan provides for severance
pay, unemployment compensation or any similar payment with respect
to any current or former employee, officer, director, or agent of
the Company. The consummation of the transactions contemplated by
this Agreement will not: (i) entitle any such individual to sever-
ance pay, unemployment compensation or other similar payment; (ii)
accelerate the time of payment or vesting of any amount; (iii)
increase the amount of compensation due to any such individual; or
(iv) constitute a "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code).
(d) For purposes of this Agreement, "Plan" shall mean
all employee plans, practices and arrangements, including without
limitation, all employee benefit plans (within the meaning of
Section 3(3) of ERISA), employee pension benefit plans, programs,
arrangements or agreements, all health, medical, welfare, disabili-
ty, life insurance, bonus, severance pay and other employee benefit
or fringe benefit plans maintained by or with respect to which the
Company has any fixed or contingent, direct or indirect liability,
and "Company Plans" shall mean all Plans that provide benefits to or
in respect of employees or former employees of the Company or their
beneficiaries.
3.16. Certain Contracts and Arrangements. Except as
listed in Schedule 3.16 or as reflected in the Company Balance
Sheet, as of the date of this Agreement, the Company is not a party
to any written: (1) employment agreement; (2) indenture, mortgage,
note, installment obligation, agreement or other instrument relating
to the borrowing of money in excess of $100,000 by the Company or
the guaranty of any obligation for the borrowing of money in excess
of $100,000 by the Company; or (3) agreement which (i) is not
terminable by the Company on ninety or fewer days' notice at any
time without penalty, (ii) has a remaining term, as of the date of
this Agreement, of over one year in length of obligation on the part
of the Company; and (iii) involves the receipt or payment by the
Company of more than $100,000, except for agreements with suppliers,
distributors and sales representatives entered into in the ordinary
course of business and consistent with past practice. Except as set
forth in Schedule 3.16, there is not, under any of the aforesaid
obligations, any default or event which, with notice or lapse of
time or both, would constitute a default on the part of the Company,
except such events of default and other events as to which requisite
waivers or consents have been obtained or which would not, in the
aggregate, have a Material Adverse Effect.
3.17. Legal Proceedings, etc. Except as set forth in
Schedule 3.17, there are no claims, actions, or proceedings pending
or investigation pending or, to PECO Energy's knowledge, threatened
against or relating to the Company before any court, governmental or
regulatory authority or body acting in an adjudicative capacity,
which, if adversely determined, would have a Material Adverse
Effect. Except as set forth in Schedule 3.17, the Company is not
subject to any outstanding judgment, rule, order, writ, injunction
or decree of any court, governmental or regulatory authority or
other body acting in an adjudicative capacity which has, or is
reasonably likely to have in the aggregate, a Material Adverse Ef-
fect.
3.18. Permits. The Company has all material permits,
licenses, franchises and other governmental authorizations, consents
and approvals (other than with respect to Environmental Laws)
(collectively, "Permits") necessary to conduct its business as pres-
ently conducted, except where the failure to have such Permits does
not have a Material Adverse Effect. Except as set forth in Schedule
3.18, the Company has not received any written notification that it
is in violation of any of such Permits, or any law, statute, order,
rule, regulation, ordinance or judgment of any governmental or regu-
latory body or authority applicable to it, except for notifications
of violations which would not, in the aggregate, have a Material Ad-
verse Effect. The Company is in compliance with all Permits, laws,
statutes, orders, rules, regulations, ordinances, or judgments of
any governmental or regulatory body or authority applicable to it,
except for violations which, in the aggregate, do not have, and are
not reasonably likely to have, a Material Adverse Effect.
3.19. Regulation as a Utility. (a) The Company is
an operating public utility not subject to registration under the
Holding Company Act and is not a subsidiary of a registered public
utility holding company under the Holding Company Act. Except as
set forth on Schedule 3.19(a), the Company is not subject to regula-
tion as a public utility or public service company (or similar
designation) by the United States, any State or Commonwealth of the
United States, any foreign country or any municipality or any
political subdivision of the foregoing.
(b) PECO Energy is a public utility holding company
exempt from registration under the Holding Company Act and is not a
subsidiary of a public utility holding company registered under the
Holding Company Act. Except as set forth on Schedule 3.19(b), PECO
Energy is not subject to regulation as a public utility or public
service company (or similar designation) by the United States, any
State or Commonwealth of the United States, any foreign country or
any municipality or any political subdivision of the foregoing.
3.20. Taxes. (a) The Company, or PECO Energy on the
Company's behalf, has (i) filed all Tax Returns (as hereinafter
defined) required to be filed by or with respect to the Company as
of the date hereof, other than those Tax Returns the failure of
which to file would not have a Material Adverse Effect, and all such
filed Tax Returns are true and complete in all material respects and
(ii) duly paid in full (or there has been paid on its behalf) or
made adequate provision for on the appropriate books and records (in
accordance with generally accepted accounting principles) all Taxes
(as hereinafter defined) shown to be due on such filed Tax Returns.
Except as set forth in Schedule 3.20, (A) neither PECO Energy nor
the Company has received any written notice of deficiency or assess-
ment from any taxing authority with respect to liabilities for Taxes
of the Company which have not been fully paid or finally settled,
(B) any such deficiency shown in such Schedule 3.20 is being con-
tested in good faith through appropriate proceedings, and (C) nei-
ther PECO Energy nor the Company has any knowledge of any pending or
threatened action or proceeding by any taxing authority with respect
to liabilities for Taxes of the Company. The federal income and
material state income Tax Returns of PECO Energy, which include the
Company, have been examined or the applicable statutory periods of
limitations have expired for all periods to and including those set
forth in Schedule 3.20, and except as set forth in Schedule 3.20,
there are no outstanding agreements or waivers extending the appli-
cable statutory periods of limitation for such Taxes for any period.
(b) Except as set forth in Schedule 3.20, no power of
attorney or similar instrument granted by the Company or PECO Energy
with respect to matters affecting Taxes of the Company is currently
in force.
(c) Except as set forth in Schedule 3.20, there are
no material liens with respect to Taxes (except for liens with re-
spect to real property Taxes not yet due) upon any of the assets of
the Company.
(d) Except as set forth in Schedule 3.20, (i) no
consent to the application of Section 341(f)(2) of the Code (or any
predecessor provision) has been made or filed by or with respect to
the Company or any of its assets, (ii) none of the assets of the
Company is an asset or property that is (A) required to be treated
as being owned by any person (other than the Company) pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately before the enactment of
the Tax Reform Act of 1986, or (B) tax-exempt use property within
the meaning of Section 168(h)(1) of the Code.
(e) The Company has not agreed to nor is it required
to make any adjustment pursuant to Section 481(a) of the Code (or
any predecessor provision) by reason of any change in any accounting
method prior to the date hereof, and there is no application pending
with any taxing authority requesting permission for any changes in
any accounting method of the Company. To the knowledge of PECO
Energy, the Internal Revenue Service has not proposed in writing any
such adjustment or change in accounting method.
(f) Other than as disclosed in Schedule 3.20, the
Company is not a party to nor has any obligation under, any Tax
sharing, allocation or similar agreement.
(g) For purposes of this Agreement, the term "Taxes"
shall mean all taxes, charges, fees, levies, penalties or other
assessments imposed by any United States federal, state, local or
foreign taxing authority, including, but not limited to, income,
gross receipts, ad valorem, excise, real property, personal proper-
ty, sales, use, transfer, franchise, employment, payroll, withhold-
ing, social security, medicare or other taxes, including any inter-
est, penalties or additions attributable thereto.
(h) For purposes of this Agreement, the term "Tax Re-
turn" shall mean any return, report, information return or other
document (including any related or supporting information) required
to be supplied to any taxing authority with respect to Taxes.
3.21. Disclosure. Neither this Agreement, nor any
Schedule, certificate, statement, writing, financial statement or
document that is specifically required by this Agreement to be
furnished to the Buyer by or on behalf of PECO Energy, as of the
date thereof, will contain any untrue statement of a material fact
or omits or will fail to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are
made, not false or misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to PECO Energy as
follows:
4.1. Organization. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware and the Commonwealth of Virginia and has all
requisite corporate power to perform its obligations under this
Agreement. The Buyer has heretofore delivered to PECO Energy com-
plete and correct copies of its Certificate of Incorporation and By-
Laws (or other similar governing documents), as currently in effect.
4.2. Authority Relative to this Agreement. The Buyer
has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Buyer and no other
corporate proceedings on the part of the Buyer are necessary to
authorize this Agreement or to consummate the transactions contem-
plated hereby. This Agreement has been duly and validly executed
and delivered by the Buyer, and assuming that this Agreement consti-
tutes a valid and binding agreement of PECO Energy, subject to the
receipt of the Buyer Required Regulatory Approvals and the PECO
Energy Required Regulatory Approvals, constitutes a valid and bind-
ing agreement of the Buyer, enforceable against the Buyer in accor-
dance with its terms, except that such enforceability may be limited
by applicable bankruptcy, insolvency, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights
generally or general principles of equity.
4.3. Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 4.3, and other than obtaining
the Buyer Required Regulatory Approvals and the PECO Energy Required
Regulatory Approvals, neither the execution and delivery of this
Agreement by the Buyer nor the performance by the Buyer of its
obligations under this Agreement will (i) conflict with or result in
any breach of any provision of the Certificate of Incorporation or
By-Laws (or other similar governing documents) of the Buyer, (ii)
require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority,
except (a) where the failure to obtain any such consents, approvals,
authorizations, or permits, or to make such filings or notifications
would not, in the aggregate, have a material adverse effect on the
ability of the Buyer to perform its obligations under this Agreement
or (b) for those requirements which become applicable to the Buyer
as a result of the specific regulatory status of the Company, PECO
Energy (or any of their respective affiliates) or as a result of any
other facts that specifically relate to the business or activities
in which the Company, PECO Energy (or any of their respective
affiliates) is or proposes to be engaged, (iii) to the best knowl-
edge of the Buyer, result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, franchise, permit, concession, contract, license
agreement or other instrument or obligation to which the Buyer is a
party or by which any of its assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as
to which requisite waivers or consents have been obtained or which,
in the aggregate, would not have a material adverse effect on the
ability of the Buyer to perform its obligations under this Agree-
ment.
(b) Except as set forth in Schedule 4.3 and
except for (i) any required approvals under the Federal Power Act,
(ii) (A) application by the Buyer to, and an order by, the MPSC
approving the transactions contemplated by the Agreement and the
related approvals applied for by the Buyer, (B) application by the
Buyer to and an order by the Delaware Public Service Commission and
the Virginia State Corporation Commission approving the transactions
contemplated by this Agreement and (C) approval, if required, of
municipalities or other local governmental bodies in the States of
Delaware and Maryland and the Commonwealth of Virginia, in the case
of each of (A), (B) and (C), pursuant to the Delaware Public Utility
Act of 1974, the Maryland Public Service Commission Law and Section
56-1 et seq. of the Virginia Code, (iii) the approval, if required,
of the SEC pursuant to the Holding Company Act, (iv) the filings by
the Buyer and PECO Energy required by Title II of the HSR Act and
(v) all approvals of any governmental authority, including the FERC
with respect to the transactions contemplated by the parties in con-
nection with the Power Purchase Agreement (the filings and approvals
referred to in clauses (i) through (v) are collectively referred to
as the "Buyer Required Regulatory Approvals"), no declaration,
application, filing or registration with, or notice to, or autho-
rization, consent or approval of any governmental or regulatory body
or authority is necessary for the consummation by the Buyer of the
transactions contemplated hereby, other than such declarations,
applications, filings, registrations, authorizations, consents or
approvals which, if not obtained or made, will not, in the aggre-
gate, have a material adverse effect on the ability of the Buyer to
perform its obligations under this Agreement.
4.4. Regulation as a Utility. The Buyer is not a
public utility holding company under the Holding Company Act.
Except in the States of Delaware and Maryland and the Commonwealth
of Virginia and by the FERC, the Buyer is not subject to regulation
as a public utility or public service company (or similar designa-
tion) by the United States, any State or Commonwealth of the United
States, any foreign country or any municipality or any political
subdivision of the foregoing.
4.5. Acquisition of Stock for Investment. The Buyer
is acquiring the Company Common Stock for investment and not with a
view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling
such Company Common Stock. The Buyer agrees that the Company Common
Stock may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the
Securities Act, except pursuant to an exemption from such regis-
tration available under the Securities Act.
4.6. Financing. The Buyer has sufficient funds
available or has received written commitments from responsible
financial institutions to provide sufficient funds on the Closing
Date to pay the Purchase Price.
ARTICLE V
COVENANTS OF THE PARTIES
5.1. Conduct of Business of the Company. Except as
described in Schedule 5.1, during the period from the date of this
Agreement to the Closing Date, PECO Energy will cause the Company to
conduct its business and operations and maintain the assets of the
Company in good repair and condition (subject to ordinary wear and
tear), all according to its ordinary and usual course of business
consistent with past practice. PECO Energy will use its reasonable
best efforts to preserve intact the business organization of the
Company and its goodwill, and keep available the services of its
present officers and key employees, and preserve intact the business
relationships with suppliers, customers and others having a business
relationship with the Company, and will also maintain its present
relationship in all material respects with the Company. Without
limiting the generality of the foregoing, and, except as contem-
plated in this Agreement or as described in Schedule 5.1, PECO
Energy will not prior to the Closing Date, without the prior written
consent of the Buyer, permit the Company to:
(a) (i) create, incur or assume any obligation or
liability, whether absolute, accrued, contingent or otherwise and
whether due or to become due, in excess of $250,000, other than in
the ordinary course of business and consistent with past practice,
including obligations in respect of capital leases but excluding
purchase money mortgages granted in connection with the acquisition
of property in the ordinary course of business and consistent with
past practice; or (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the
ordinary course of business and consistent with past practice; pro-
vided, that the Company may endorse negotiable instruments in the
ordinary course of business and consistent with past practice;
(b) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of the Company's capital stock (other than
pursuant to Section 5.16), or redeem or otherwise acquire any shares
of the Company's capital stock;
(c) (i) increase the rate or terms of compensation or
benefits payable or to become payable by the Company to its direc-
tors, officers or employees, except increases occurring in the
ordinary course of business and consistent with past practice (which
shall include normal periodic performance reviews and related
compensation and benefit increases) and except pursuant to the VRIP
or the VSIP according to the terms of such programs on the date
hereof; (ii) adopt, amend or terminate any Company Plan, except any
adoption, amendment or termination occurring in the ordinary course
of business and consistent with past practice or to comply with any
applicable law or regulation; or (iii) hire any new employee, other
than as necessary in order to conduct its business in its ordinary
course and consistent with past practice. Any such employee may
only be hired to replace a then current employee and such newly
hired employee shall not receive a salary or benefits in excess of
the departing employee;
(d) amend the Articles of Incorporation or Bylaws of
the Company;
(e) issue any equity or debt security other than debt
securities meeting the requirements of clause (a) above;
(f) purchase, sell, lease, dispose of or otherwise
transfer or subject to any lien or encumbrance (other than liens and
encumbrances set forth in Schedule 3.10, 5.16 and Permitted Excep-
tions), any assets of the Company, other than, with respect to any
individual item having a value of less than $100,000 and with
respect to all assets of the Company the aggregate value of which
shall not exceed $500,000 in the ordinary course of business and
consistent with past practice;
(g) change in any material respect or terminate any
of the insurance policies referred to in Section 3.12 in effect on
the date hereof, unless equivalent coverage at an equivalent or
lesser price is obtained;
(h) perform any act or omit to perform any act which
would cause a breach or default under any contract, lease or agree-
ment set forth on Schedule 3.11 or Schedule 3.16, except where any
such breaches or defaults would not, in the aggregate, have a
Material Adverse Effect;
(i) enter into any new or terminate, renew, extend or
renegotiate any existing power purchase, exchange or transmission
contract necessary to supply power to the Company's service area;
(j) engage in any transaction or transactions with
PECO Energy or any affiliate of PECO Energy, except for transactions
contemplated by this Agreement or in the ordinary course of business
and consistent with past practice or which in the aggregate do not
exceed $100,000;
(k) make any capital expenditure other than those
which are set forth in the Company's Capital Expenditure Forecast, a
copy of which previously has been provided to the Buyer in the
management presentation, except that PECO Energy or the Company
shall not make any capital expenditure with respect to the new Ser-
vice/Headquarters Building that is currently being constructed at
the Peninsula Industrial Park, Lums Road Site, North East, Maryland
(the "New Service/HQ Building");
(l) other than pursuant to clause (k) above, make any
capital expenditures or capital expenditure commitments or enter
into any lease, as lessee, of capital equipment or other property,
except with respect to any individual capital expenditure or lease
having a cost to the Company not in excess of $100,000 and with re-
spect to all capital expenditures and leases the aggregate cost of
which shall not exceed $500,000 incurred in the ordinary course of
business and consistent with past practice;
(m) make any changes in accounting principles, meth-
ods or practices or financial policies and practices applicable to
the Company, except as required by generally accepted accounting
principles;
(n) change the Company's taxable year;
(o) make, file, or enter into (whether before or
after the Closing Date) any election, consent, or agreement de-
scribed in Section 3.20(d) or Section 3.20(e) hereof with respect to
the Company or any of its assets;
(p) enter into, amend, terminate or waive any materi-
al provision of any agreement, commitment or transaction not de-
scribed in clauses (a) through (p) above (including without limi-
tation any borrowing, capital expenditure or capital financing),
material to the business, operations or financial condition of the
Company, except agreements, commitments or transactions in the
ordinary course of business and consistent with past practice or as
contemplated herein;
(q) commence actual construction of any new facili-
ties, except for those projects set forth on Schedule 5.1;
(r) engage in any activity which would cause a change
in the status of the Company, under any applicable regulatory body;
(s) except with respect to those matters set forth on
Schedule 5.1, file any applications, petitions, motions, orders,
briefs, settlement agreements or other papers in any proceeding
before any governmental authority, or make any appeals related
thereto; or
(t) enter into any contract, agreement, commitment or
arrangement, whether written or oral, with respect to any of the
transactions set forth in the foregoing paragraphs (a) through (s).
5.2. Access to Information.
(a) Between the date of this Agreement and the
Closing Date, PECO Energy will cause the Company, during ordinary
business hours and upon reasonable notice, to (i) give the Buyer and
its accountants, counsel, environmental consultants, financial
advisors and other authorized representatives (the "Buyer Represen-
tatives") reasonable access to all books, records, plants, offices
and other facilities and properties of the Company to which the
Buyer is permitted access by law, (ii) permit the Buyer to make such
reasonable inspections thereof as the Buyer may reasonably request;
(iii) cause its officers and advisors to furnish the Buyer with
annual and quarterly financial statements of the Company for all
periods between the date hereof and the Closing Date and such other
financial and operating data and other information with respect to
the business and properties of the Company as the Buyer may from
time to time reasonably request; (iv) cause its officers and advi-
sors to furnish the Buyer a copy of each report, schedule or other
document filed or received by them with the SEC, MPSC or FERC with
respect to the Company provided, however, that (A) any such inves-
tigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the business of the Company, (B)
the Company shall not be required to take any action which would
constitute a waiver of the attorney-client privilege and (C) the
Company need not supply the Buyer with any information which the
Company is under a legal obligation not to supply.
(b) All information furnished to or obtained by the
Buyer and the Buyer Representatives pursuant to this Section 5.2
shall be subject to the provisions of the Confidentiality Agreement,
dated March 25, 1994 between PECO Energy and the Buyer (the "Confi-
dentiality Agreement") and shall be treated as "Information" (as
defined in the Confidentiality Agreement).
5.3. Expenses. Whether or not the transactions
contemplated hereby are consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated
hereby shall be borne by the party incurring such costs and expens-
es.
5.4. Further Assurances. Subject to the terms and
conditions of this Agreement, each of the parties hereto will use
all reasonable efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement.
From time to time after the date hereof, without further consider-
ation, PECO Energy will, at its own expense, execute and deliver
such documents to the Buyer as the Buyer may reasonably request in
order more effectively to vest in the Buyer good title to the Compa-
ny Common Stock. From time to time after the date hereof, without
further consideration, the Buyer will, at its own expense, execute
and deliver such documents to PECO Energy as PECO Energy may reason-
ably request in order more effectively to consummate the sale of the
Company Common Stock pursuant to this Agreement.
5.5. Public Statements. The parties shall consult
with each other prior to issuing any public announcement, statement
or other disclosure with respect to this Agreement or the transac-
tions contemplated hereby and shall not issue any such public
announcement, statement or other disclosure prior to such consulta-
tion, except as may be required by law and except that the parties
may make public announcements, statements or other disclosures with
respect to this Agreement and the transactions contemplated hereby
to the extent and under the circumstances in which the parties are
expressly permitted by the Confidentiality Agreement to make dis-
closures of "Information" (as defined in the Confidentiality Agree-
ment).
5.6. Consents and Approvals.
(a) PECO Energy and the Buyer shall each file or
cause to be filed with the Federal Trade Commission and the United
States Department of Justice any notifications required to be filed
under the HSR Act and the rules and regulations promulgated thereun-
der with respect to the transactions contemplated hereby. The
parties shall consult with each other as to the appropriate time of
filing such notifications and shall use their best efforts to make
such filings at the agreed upon time, to respond promptly to any
requests for additional information made by either of such agencies,
and to cause the waiting periods under the HSR Act to terminate or
expire at the earliest possible date after the date of filing.
(b) PECO Energy and the Buyer shall cooperate
with each other to (i) promptly prepare and file all necessary
documentation, (ii) effect all necessary applications, notices,
petitions and filings and execute all agreements and documents,
(iii) use all reasonable efforts to obtain all necessary permits,
consents, approvals and authorizations of all governmental bodies
and (iv) use all reasonable efforts to obtain all necessary Permits,
consents, approvals and authorizations of all other parties, in the
case of each of the foregoing clauses (i), (ii), (iii) and (iv),
necessary or advisable to consummate the transactions contemplated
by this Agreement (including, without limitation, the PECO Energy
Required Regulatory Approvals and the Buyer Required Regulatory
Approvals) or required by the terms of any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument to which the Company or the
Buyer or any of its subsidiaries is a party or by which any of them
is bound. PECO Energy shall have the right to review and approve in
advance all characterizations of the information relating to PECO
Energy; the Buyer shall have the right to review and approve in
advance all characterizations of the information relating to the
Buyer; and each of PECO Energy and the Buyer shall have the right to
review and approve in advance all characterizations of the informa-
tion relating to the Company and the transactions contemplated by
this Agreement which appear in any filing made in connection with
the transactions contemplated hereby. The parties hereto agree that
they will consult with each other with respect to the obtaining of
all such necessary Permits, consents, approvals and authorizations
of all third parties and governmental bodies. PECO Energy and the
Buyer shall designate separate counsel with respect to all applica-
tions, notices, petitions and filings (joint or otherwise) relating
to this Agreement and the transactions contemplated hereby and in
connection with the Power Purchase Agreement (including but not
limited to the PECO Energy Required Regulatory Approvals and the
Buyer Required Regulatory Approvals) on behalf of PECO Energy, the
Company and the Buyer with all governmental bodies.
(c) The parties hereto shall consult with each
other prior to proposing or entering into any stipulation or agree-
ment with any Federal, State, Commonwealth or local governmental
authority or agency or any third party in connection with any
Federal, State, Commonwealth or local governmental consents and
approvals legally required for the consummation of the transactions
contemplated hereby and shall not propose or enter into any stipula-
tion or agreement without the other party's prior written consent,
which consent shall not be unreasonably withheld.
5.7. Fees and Commissions. PECO Energy and the Buyer
each represent and warrant to the other that, except for Morgan
Stanley & Co. Incorporated, which is acting for and at the expense
of PECO Energy, and Merrill Lynch, Pierce, Fenner & Smith Incorpo-
rated, which is acting for and at the expense of the Buyer, no
broker, finder or other person is entitled to any brokerage fees,
commissions or finder's fees in connection with the transaction
contemplated hereby by reason of any action taken by the party
making such representation. PECO Energy and the Buyer will pay to
the other or otherwise discharge, and will indemnify and hold the
other harmless from and against, any and all claims or liabilities
for all brokerage fees, commissions and finder's fees (other than as
described above) incurred by reason of any action taken by such
party.
5.8. Sales and Transfer Taxes. Notwithstanding
anything in this Agreement to the contrary, all transfer taxes (in-
cluding all stock transfer taxes, if any) incurred in connection
with this Agreement and the transactions contemplated hereby shall
be borne by the Buyer, and the Buyer will, at its own expense, file
all necessary Tax Returns and other documentation with respect to
all such transfer taxes, and, if required by applicable law, PECO
Energy will join in the execution of any such Tax Returns or other
documentation.
5.9. Supplements to Schedules. From time to time
prior to the Closing Date, PECO Energy shall supplement or amend the
Schedules required by Article III with respect to any matter hereaf-
ter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in
such Schedules; provided, however, that any matters included there-
in, by so supplementing or amending the Schedules, will not be
deemed to cure any breach of any representation or warranty made in
this Agreement.
5.10. Employees. (a) Individuals who are employees
of the Company as of the Closing Date shall not exceed 92 less any
employees of the Company who prior to the Closing Date participate
in either the VRIP or the VSIP plus any person who is hired by the
Company pursuant to Section 5.1(c)(iii). Employees of the Company
as of the Closing Date ("Employees") will be employed immediately
following the Closing Date in such positions as the Buyer shall
thereafter determine, giving due consideration to the previous work
history, job experience, and qualifications of the Employees as well
as the Buyer's needs.
(b) (i) For a period of three years following the
Closing Date, Employees not covered after the Closing Date by a
collective bargaining agreement shall be treated as any other simi-
larly-situated employees of the Buyer in the event of any reductions
in the Buyer's working force, without regard to whether their past
employment was with the Company or the Buyer.
(ii) Employees that are covered after the Closing
Date by a collective bargaining agreement shall be treated as
provided in the then-effective collective bargaining agreement be-
tween the Buyer and the collective bargaining representative of the
Employees in the event of any reductions in the Buyer's working
force; provided, that the Buyer shall negotiate in good faith with
the collective bargaining representative and thereby attempt to
ensure that, for a period of three years following the Closing Date,
Employees who accept positions with the Buyer that are covered by a
collective bargaining agreement shall be treated as any other
similarly-situated employees of the Buyer in the event of any
reduction in the Buyer's working force, without regard to whether
their past employment was with the Company or the Buyer. Nothing in
the foregoing shall require, however, that the Buyer make any
concession or other commitment during such negotiations unless the
Buyer determines, in its sole and unreviewable discretion, that is
appropriate to do so.
(c) Except as otherwise provided in paragraph (d)
below, immediately following the Closing Date, the Employees shall
be employed on substantially the same terms and conditions as, and
shall be covered by benefit plans or arrangements which, in the
aggregate, provide substantially equivalent benefits (at no addi-
tional cost) as were provided to the Employees immediately prior to
the Closing Date, except to the extent otherwise required by the
then-effective collective bargaining agreement covering such Em-
ployees (as applicable). Such Employees shall receive credit for
past service with the Company, PECO Energy or its subsidiaries for
purposes of eligibility, participation, vesting, benefit accrual or
entitlement under any such benefit plans and arrangements, includ-
ing, but not limited to, satisfaction of any preexisting condition
exclusion under any such plan providing health care coverage.
(d) Effective as of the Closing Date, the Buyer will
establish a pension plan for the benefit of all Employees who
continue in the employment of the Buyer following the Closing Date
("Continuing Employees"). Such plan (the "Buyer's Plan") shall
provide accrued pension benefits for each Continuing Employee in
respect of service prior to the Closing Date in an amount at least
equal to the amount of such benefits accrued as of the Closing Date
by such Continuing Employee (the "PECO Accrued Benefit") under the
Service Annuity Plan of Philadelphia Electric Company ("PECO
Energy's Plan"). The Buyer represents and warrants that the Buyer's
Plan is or will become qualified under Section 401(a) of the Code.
Credit for prior service and earnings with PECO Energy or its
affiliates in respect of each Continuing Employee for purposes of
eligibility and vesting and for accrual of benefits shall be provid-
ed under the Buyer's Plan. PECO Energy shall cause to be trans-
ferred to the Buyer's Plan, as soon as practical following the
Closing Date, but in no event before the 31st day after the filing
of all of the required Forms 5310-A, if any, in connection with such
transfer, and in no event later than 60 days following the Closing
Date, an amount equal to (i) plus (ii) less (iii):
(i) An amount equal to the aggregate actuarial
present value (as determined as set forth below) of the PECO Accrued
Benefit for each Employee. Such PECO Accrued Benefits shall include
the value, based on benefits accrued under PECO Energy's Plan as of
the Closing Date, of early retirement benefits as described in Sec-
tion 4.3 and Section 4.6 of PECO Energy's Plan and the 50% Contin-
gent Annuitant Option as described in Section 5.3(b) of PECO
Energy's Plan for those Continuing Employees who upon termination of
employment with the Buyer meet the requirements for early retirement
as described in Section 4.3 of PECO Energy's Plan. In addition,
such PECO Accrued Benefit shall include the value of preretirement
death benefits as described in Section 5.3 and Section 5.4 of PECO
Energy's Plan.
(ii) Interest on the amount determined under (i)
from the Closing Date to the date of transfer of such assets and
liabilities (the "Transfer Date") at the Pension Benefit Guaranty
Corporation immediate interest rate in effect at the Closing Date.
(iii) Any payment made to or in respect of a Con-
tinuing Employee who retires or otherwise terminates employment
after the Closing Date but before the Transfer Date.
The actuarial present value of benefits shall be
determined by the actuary for PECO Energy's Plan as of the Closing
Date and shall be calculated in accordance with Section 414(l) of
the Code on the basis of the following assumptions:
(A) The interest rates, mortality assumption, and retirement age
assumption as used by the Pension Benefit Guaranty Corporation
for terminating single employer plans as of the Closing Date.
(B) The same percentage married and turnover assumptions as used
by PECO Energy's actuary in preparing the most recent actuari-
al valuation report for the PECO Energy's Plan.
(e) PECO Energy shall pay all benefits accrued under
PECO Energy's Plan that become due and payable in respect of Contin-
uing Employees prior to the Transfer Date. As of the Transfer Date,
the Buyer shall assume all of the liabilities and obligations under
PECO Energy's Plan with respect to the PECO Accrued Benefits and
each of PECO Energy and PECO Energy's Plan shall be relieved of all
such liabilities and obligations. Upon the transfer of assets and
liabilities in accordance with this Section, the Buyer agrees to
indemnify and hold harmless PECO Energy, its officers, directors,
employees, agents and affiliates, and the PECO Energy Plan and its
fiduciaries, agents and delegatees, from and against any and all
costs, damages, losses, expenses or other liabilities arising out of
or related to the Buyer's Plan, including benefits accrued by Con-
tinuing Employees prior to the Transfer Date which are provided by
the Buyer's Plan; provided, however, that the Buyer shall not indem-
nify or hold harmless such parties with respect to those costs,
damages, losses or other liabilities that result from the acts or
omissions of such parties, which acts or omissions occurred or
should have occurred prior to the Transfer Date.
(f) PECO Energy shall cooperate with and supply
sufficient information to the actuary designated by the Buyer to
enable such actuary to verify all calculations required under this
section.
(g) Except as specifically provided in paragraph (e)
above, PECO Energy and its affiliates (other than the Company) shall
retain any and all liability with respect to any Plan after the
Closing Date with respect to any Employees who are not Continuing
Employees and with respect to any liabilities incurred prior to the
Closing Date with respect to Continuing Employees ("PECO Energy
Employee Liabilities"). PECO Energy agrees to indemnify and hold
harmless the Buyer and the Company, their officers, directors,
employees, agents and affiliates and the Buyer's Plan and its
fiduciaries, agents and delegatees for any and all Seller's Liabili-
ties including, but not limited to, any and all costs, damages,
losses, expenses or other liabilities arising out of or related to
any PECO Energy Employee Liabilities; provided, however, PECO Energy
shall not hold harmless such parties with respect to those costs,
damages, losses or other liabilities with respect to Continuing
Employees that result from the acts or omissions of such parties
that occurred after the Closing Date.
(h) Effective as of the Closing Date, the Buyer will
establish or designate a profit sharing plan including a cash or
deferred arrangement ("Buyer's Savings Plan") for the benefit of all
Continuing Employees. The Buyer represents and warrants that the
Buyer's Savings Plan is or will become qualified under sections
401(a) and 401(k) of the Code. PECO Energy shall cause to be
transferred to the Buyer's Savings Plan, as soon as practical
following the Closing Date, but in no event before the 31st day
after the filing of all Forms 5310-A, if required in connection with
such transfer, assets representing the account balances (in cash or
cash equivalents) of all Continuing Employees under the PECO Energy
Employee Savings Plan. The PECO Energy Employee Savings Plan shall
pay all benefits accrued thereunder that become due and payable in
respect of Continuing Employees prior to the date of such transfer.
As of the date of such transfer, the Buyer shall assume all of the
liabilities and obligations under the PECO Energy Employee Savings
Plan with respect to Continuing Employees and each of PECO Energy
and the PECO Energy Employee Savings Plan shall be relieved of all
such liabilities and obligations. The parties hereto shall cooper-
ate to achieve such transfer in a manner intended to reduce any
administrative inconvenience. Upon the transfer of assets and lia-
bilities in accordance with this Section, the Buyer agrees to indem-
nify and hold harmless PECO Energy, its officers, directors, employ-
ees, agents and affiliates, and the PECO Energy Employee Savings
Plan and its fiduciaries and agents, from and against all costs,
damages, losses, expenses or other liabilities arising out of or
related to the Buyer's Savings Plan, including benefits accrued by
Continuing Employees prior to the date of transfer of assets and
liabilities which are provided by the Buyer's Savings Plan; provid-
ed, however, that the Buyer shall not indemnify or hold harmless
such parties with respect to those costs, damages, losses or other
liabilities that result from the acts or omissions of such parties,
which acts or omissions occurred or should have occurred prior to
the date of transfer of assets and liabilities.
5.11. No Negotiations. To the extent not required by
any governmental authority or agency, PECO Energy shall and shall
cause the Company and each person acting for or on behalf of PECO
Energy or the Company to refrain from taking, directly or indirect-
ly, any action (a) to seek or encourage any offer or proposal from
any person to acquire any assets (other than in the ordinary course
of business and consistent with past practice) or shares of capital
stock or other securities of the Company, (b) to merge, consolidate
or combine or permit any other person to merge, consolidate or
combine with the Company, (c) to negotiate or reach any agreement or
understanding (whether or not such agreement or understanding is
absolute, revocable, contingent or conditional) for, or otherwise to
attempt to consummate any such acquisition, transfer, merger, con-
solidation or combination or (d) to furnish or cause to be furnished
any information with respect to the Company to any person (other
than the Buyer or as otherwise required by law or any governmental
authority). PECO Energy will promptly advise the Buyer of receipt
by PECO Energy, the Company or any of their respective represen-
tatives of any offer, proposal or informational request that is
subject to this Section 5.11 from any person (other than the Buyer).
5.12. Post-Closing Assistance. PECO Energy shall
make its employees available from time to time upon reasonable
notice, so as not to interfere with PECO Energy's business and
operations, subsequent to the Closing Date and shall provide such
data and other information in such form as may be reasonably re-
quested by the Buyer to assist the Buyer at the Buyer's reasonable
cost and expense, in connection with the defense, prosecution or
investigation of any of the Buyer's obligations, rights and liabili-
ties relating to the Company.
5.13. Record Retention Procedures. Until the fifth
anniversary of the Closing Date, PECO Energy shall not dispose of
any books, records, documents or information relating to the Company
prior to the Closing Date without first giving notice to the Buyer
and permitting the Buyer to retain or copy such books and records as
it may select, which selection must be made within a reasonable
time. During such period, PECO Energy shall permit the Buyer to
make copies, at the Buyer's expense, of such books, records, docu-
ments or information for any reasonable purpose. In addition, PECO
Energy shall make available to the Buyer after Closing upon reason-
able notice so as not to interfere with PECO Energy's business and
operations, those employees of PECO Energy with knowledge of or
relevant to the above-described matters for the purpose of consul-
tation and/or testimony in connection therewith, such services to be
performed at the Buyer's reasonable cost and expense.
5.14. Section 338(h)(10) Election. (a) With respect
to the purchase by the Buyer of the Company Common Stock (i) PECO
Energy, the Company and the Buyer shall jointly make a valid, timely
and effective election as provided for in Section 338(h)(10) of the
Code and the Treasury Regulations provided thereunder (the "Elec-
tion") (and any comparable election under state or local tax law),
(ii) PECO Energy, the Company and the Buyer shall, as promptly as
practicable following the Closing Date, cooperate with each other to
take all actions necessary and appropriate (including filing such
forms, returns, elections, schedules and other documents as may be
required) to effect and preserve a timely Election in accordance
with the provisions of Treasury Regulation Sec. 1.338(h)(10)-1 (or any
comparable provision of state or local tax law) or any successor
provisions and (iii) PECO Energy and the Buyer shall report the
purchase by the Buyer of the Company Common Stock consistent with
the Election (and any comparable elections under state or local tax
laws) and shall take no position to the contrary thereto in any Tax
Return, any proceeding before any taxing authority, or otherwise.
(b) In connection with the Election, PECO Energy and
the Buyer shall act together in good faith to agree on the Aggregate
Deemed Sales Price (as defined under applicable Treasury Regula-
tions) and the allocation of such Aggregate Deemed Sales Price among
the Company's assets. Such allocation of the Aggregate Deemed Sales
Price shall be made in accordance with Section 338(b) of the Code
and any applicable Treasury Regulations. If PECO Energy and the
Buyer are unable to agree on such allocation, such dispute shall be
resolved by the Settlement Auditor, whose fees and expenses shall be
paid equally by both PECO Energy and the Buyer. PECO Energy and the
Buyer (i) shall be bound by such allocation for purposes of deter-
mining any Taxes, (ii) shall prepare and file all Tax Returns to be
filed with any taxing authority in a manner consistent with such
allocation, and (iii) shall take no position inconsistent with such
allocation in any Tax Return, any proceeding before any taxing
authority or otherwise. In the event that such allocation is
disputed by any taxing authority, the party receiving notice of such
dispute shall promptly notify and consult with the other party
concerning resolution of such dispute.
5.15. Other Tax Matters. PECO Energy will refrain
from making an election to reattribute any losses of the Company
under Treasury Regulation Section 1.1502-20(g). PECO Energy shall
cause the Company to be included in its federal consolidated income
Tax Return for its taxable year ended December 31, 1993.
5.16. Transfer of Certain Assets, Properties and
Other Items. (a) Prior to the Closing, PECO Energy shall cause the
Company to transfer to PECO Energy (or any of its subsidiaries other
than the Company) (i) title to the 500kV Peach Bottom-Keeney trans-
mission line and all real property relating thereto, except that the
Company will reserve the property rights set forth in Schedule
5.16(a), (ii) title to the Company's service facility at the inter-
section of Bridge and High Streets in Elkton, Maryland (the "Elkton
Service Center"), and (iii) the Company's employees, leased vehi-
cles, equipment and parts in stock, and the lease of the Building in
Delta, Pennsylvania, which are used by the Company to provide cus-
tomer and maintenance services in the PECO Energy service territory
in York County, Pennsylvania (the "York Transfer"). A Schedule of
the property to be transferred in connection with the York Transfer
shall be provided by PECO Energy to the Buyer prior to the Closing
and, immediately upon the consummation of the York Transfer, the
Company's obligation to provide customer and maintenance services in
York County, Pennsylvania shall terminate.
(b) The distribution of properties and assets by the
Company to PECO Energy contemplated by Section 5.16(a) shall be ef-
fected pursuant to a plan of liquidation pursuant to Section 332 of
the Code, which the Company shall adopt prior to the Closing Date.
(c) PECO Energy and the Buyer hereby agree that not
later than 45 days following the date of this Agreement, PECO Energy
(or any subsidiary of PECO Energy that is to acquire title to the
Elkton Service Center pursuant to Section 5.16(a)) and the Buyer
shall negotiate in good faith, and execute, a definitive agreement
relating to the lease of the Elkton Service Center by the Buyer, the
terms and conditions of which shall be reasonably satisfactory to
the parties hereto and include, without limitation, the terms and
conditions set forth in Annex 2 hereto.
5.17. Termination of Tax Sharing Agreements. PECO
Energy agrees to terminate on or prior to the Closing Date any Tax
sharing agreement, arrangement or similar contract between PECO
Energy (or any affiliate thereof) and the Company, and in no event
shall the Company be required to make any payments thereunder on
account of any transactions occurring prior to, on or after the
Closing Date.
5.18. Power Purchase Arrangements. The Buyer and
PECO Energy agree to cause the termination of the Tri-Partite
Agreement, dated May 1, 1972, among the Company, PECO Energy and
Susquehanna Electric Company, and the implementation of the Power
Purchase Agreement attached hereto as Annex 3 (the "Power Purchase
Agreement"), in each case effective as of February 1, 1996.
ARTICLE VI
CLOSING CONDITIONS
6.1. Conditions to Each Party's Obligations to Effect
the Transactions Contemplated Hereby. The respective obligations of
each party to effect the transactions contemplated hereby shall be
subject to the fulfillment at or prior to the Closing Date of the
following conditions.
(a) The waiting period under the HSR Act applica-
ble to the consummation of the transactions contemplated hereby
shall have expired or been terminated;
(b) No preliminary or permanent injunction or
other order or decree by any federal or state court which prevents
the consummation of the transactions contemplated hereby shall have
been issued and remain in effect (each party agreeing to use its
reasonable best efforts to have any such injunction, order or decree
lifted) and no statute, rule or regulation shall have been enacted
by any State, Commonwealth or Federal government or governmental
agency in the United States which prohibits the consummation of the
transactions contemplated hereby;
(c) All Federal, State, Commonwealth and local
government consents and approvals required for the consummation of
the transactions contemplated hereby and in connection with the
Power Purchase Agreement, including, without limitation, the PECO
Energy Required Regulatory Approvals and the Buyer Required Regula-
tory Approvals, shall have been obtained and have become Final
Orders and shall contain no provisions or conditions which, directly
or indirectly, would have a material adverse effect on the business,
operations, financial condition or prospects of both (i) the net
transmission and distribution assets of the Company and (ii) the net
transmission and distribution assets in Maryland of the Buyer. A
"Final Order" means a final order after all opportunities for
rehearing are exhausted (whether or not any appeal thereof is
pending).
(d) All consents and approvals required under the
terms of any note, bond, mortgage, indenture, contract or other
agreement to which PECO Energy, the Company or the Buyer, or any of
their respective subsidiaries, is a party for the consummation of
the transactions contemplated hereby shall have been obtained, other
than those which, if not obtained, would not, in the aggregate, have
a Material Adverse Effect or a material adverse effect on the
ability of PECO Energy or the Buyer to perform its obligations
pursuant to this Agreement.
(e) The Power Purchase Agreement attached hereto
as Annex 3 shall have been executed and delivered by the parties
thereto.
6.2. Conditions to Obligations of the Buyer. The
obligation of the Buyer to effect the transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to
the Closing Date of the following additional conditions:
(a) There shall not have occurred and be continu-
ing, a Material Adverse Effect;
(b) PECO Energy shall have performed and complied
with in all material respects the covenants and agreements contained
in this Agreement required to be performed and complied with by it
at or prior to the Closing Date, and the representations and warran-
ties of PECO Energy set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement
and as of the Closing Date as though made at and as of the Closing
Date; and
(c) The Buyer shall have received a certificate
from an authorized officer of PECO Energy, dated the Closing Date,
to the effect that to the best of such officer's knowledge, the
conditions set forth in Section 6.2(a) and (b) have been satisfied;
(d)(i) All indebtedness, whether secured or
unsecured, of the Company (other than trade payables incurred in the
ordinary course of business and consistent with past practice) shall
have been offset or paid in full with no adverse Tax consequences to
the Company resulting from such offset or payment in full; (ii) All
indebtedness or other obligations of the Company to PECO Energy or
any affiliate of PECO Energy or of PECO Energy or any affiliate of
PECO Energy to the Company (including, but not limited to, those
items shown on the financial statements and books and records of the
Company as power purchase receivables or payables, federal Taxes
receivable or payable and deferred alternative minimum Tax receiv-
able or payable) shall have been offset or paid in full with no
adverse Tax consequences to the Company resulting from such offset
or payment in full; and (iii) the cash and cash equivalents held by
the Company on the Closing Date shall not be less than $1,000,000.
(e) The Buyer shall have received an opinion
from Skadden, Arps, Slate, Meagher & Flom, special counsel to PECO
Energy, dated the Closing Date and satisfactory in form and sub-
stance to the Buyer and its counsel, substantially to the effect
that:
(i) PECO Energy is a corporation duly orga-
nized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has the corporate power and author-
ity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; and the execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by requisite corporate action taken
on the part of PECO Energy;
(ii) The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Maryland;
(iii) this Agreement has been executed and
delivered by PECO Energy and (assuming that the PECO Energy Required
Regulatory Approvals and the Buyer Required Regulatory Approvals are
obtained) is a valid and binding obligation of PECO Energy, enforce-
able against PECO Energy in accordance with its terms, except (A)
that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights, (B) that the remedy of specif-
ic performance and injunctive and other forms of equitable relief
may be subject to certain equitable defenses and to the discretion
of the court before which any proceeding therefore may be brought
and (C) that such counsel expresses no opinion with respect to the
indemnification provisions contained in Article VIII hereof;
(iv) the execution, delivery and perfor-
mance of this Agreement by PECO Energy will not constitute a viola-
tion of the Articles of Incorporation or Bylaws in each case as
currently in effect, of PECO Energy; and
(v) PECO Energy, by reason of delivery of
certificates for the shares of Company Common Stock in the name of
the Buyer, will transfer to the Buyer good title to such shares,
free and clear of any liens, encumbrances, equities and claims.
As to any matter contained in such opinion which
involves the laws of any jurisdiction other than the federal laws of
the United States or the laws of the State of New York, such counsel
may rely upon opinions of counsel admitted in such other jurisdic-
tions. Any opinions relied upon by such counsel as aforesaid shall
be delivered together with the opinion of such counsel. Such
opinion may expressly rely as to matters of fact upon certificates
furnished by PECO Energy and appropriate officers and directors of
the Company and by public officials.
6.3. Conditions to Obligations of PECO Energy. The
obligation of PECO Energy to effect the transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to
the Closing Date of the following additional conditions:
(a) The Buyer shall have performed in all materi-
al respects its covenants and agreements contained in this Agreement
required to be performed at or prior to the Closing Date;
(b) The representations and warranties of the
Buyer set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the
Closing Date as though made at and as of the Closing Date;
(c) PECO Energy shall have received a certificate
from an authorized officer of the Buyer, dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 6.3(a) and (b) have been satisfied;
and
(d) PECO Energy shall have received an opinion
from LeBoeuf, Lamb, Greene & MacRae, counsel for the Buyer, dated
the Closing Date and satisfactory in form and substance to PECO
Energy and its counsel, substantially to the effect that:
(i) the Buyer is a corporation duly orga-
nized, validly existing and in good standing under the laws of the
State of Delaware and the Commonwealth of Virginia and has the
corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby; and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by requi-
site corporate action taken on the part of the Buyer;
(ii) this Agreement has been executed and
delivered by the Buyer and (assuming that the PECO Energy Required
Regulatory Approvals and the Buyer Required Regulatory Approvals are
obtained) is a valid and binding obligation of the Buyer, enforce-
able against the Buyer in accordance with its terms, except (A) that
such enforcement may be subject to bankruptcy, insolvency, reorgani-
zation, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, (B) that the remedy of specific
performance and injunctive and other forms of equitable relief may
be subject to certain equitable defenses and to the discretion of
the court before which any proceeding therefore may be brought and
(C) that such counsel expresses no opinion with respect to the
indemnification provisions contained in Article VIII hereof; and
(iii) the execution, delivery and perfor-
mance of this Agreement by the Buyer will not constitute a violation
of the Certificate of Incorporation or By-Laws, as currently in ef-
fect, of the Buyer.
As to any matter contained in such opinion which
involves the laws of any jurisdiction other than the federal laws of
the United States and the State of New York, such counsel may rely
upon opinions of counsel admitted to practice in such other juris-
dictions. Any opinions relied upon by such counsel as aforesaid
shall be delivered together with the opinion of such counsel. Such
opinion may expressly rely as to matters of facts upon certificates
furnished by appropriate officers and directors of the Buyer and its
subsidiaries and by public officials.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1. Termination.
(a) This Agreement may be terminated at any time
prior to the Closing Date, by mutual written consent of the Buyer
and PECO Energy.
(b) This Agreement may be terminated by PECO
Energy or the Buyer if the transactions contemplated hereby shall
not have been consummated on or before 12 months from the date of
this Agreement; provided that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing Date to occur
on or before such date; and provided, further, that the termination
date specified in this Section 7.1(b) shall automatically be extend-
ed to 18 months from the date of this Agreement if after 12 months
from the date of this Agreement, (i) the condition set forth in
Section 6.1(c) has not been satisfied or waived, (ii) all other
conditions set forth in Article VI have been or are then capable of
being satisfied and (iii) the approvals required by Section 6.1(c)
which have at that time not yet been obtained are being pursued with
diligence.
(c) This Agreement may be terminated by either
PECO Energy or the Buyer if (i) any governmental or regulatory body,
the consent of which is a condition to the obligations of PECO
Energy and the Buyer to consummate the transactions contemplated
hereby, shall have determined not to grant its consent and all
appeals of such determination shall have been taken and have been
unsuccessful, or (ii) any court of competent jurisdiction in the
United States or any State or Commonwealth shall have issued an
order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such
order, judgment or decree shall have become final and nonappealable.
(d) This Agreement may be terminated by the
Buyer, if there has been a material violation or breach by PECO
Energy of any agreement, representation or warranty contained in
this Agreement which has rendered the satisfaction of any condition
to the obligations of the Buyer impossible and such violation or
breach has not been waived by the Buyer.
(e) This Agreement may be terminated by PECO
Energy, if there has been a material violation or breach by the
Buyer of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to
the obligations of PECO Energy impossible and such violation or
breach has not been waived by PECO Energy.
7.2. Procedure and Effect of Termination. In the
event of termination of this Agreement and abandonment of the
transactions contemplated hereby by either or both of the parties
pursuant to Section 7.1, written notice thereof shall forthwith be
given by the terminating party to the other party and this Agreement
shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If
this Agreement is terminated as provided herein:
(a) said termination shall be the sole remedy of
the parties hereto with respect to breaches of any agreement,
representation or warranty contained in this Agreement and none of
the parties hereto nor any of their respective trustees, directors,
officers or affiliates, as the case may be, shall have any liability
or further obligation to the other party or any of their respective
trustees, directors, officers or affiliates, as the case may be,
pursuant to this Agreement, except in each case as stated in this
Section 7.2 and in Sections 5.2(b), 5.3 and 5.7; and
(b) all filings, applications and other submis-
sions made pursuant to this Agreement, to the extent practicable,
shall be withdrawn from the agency or other person to which they
were made.
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification. (a) PECO Energy will indemni-
fy, defend and hold harmless the Buyer from and against any and all
claims, demands or suits (by any person), losses, liabilities,
damages, obligations, payments, costs and expenses (including,
without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compro-
mises relating thereto and reasonable attorneys' fees and disburse-
ments in connection therewith) to the extent the foregoing are not
covered by insurance, and excluding any amounts indemnified by
either PECO Energy or the Buyer pursuant to Section 8.3 hereof (col-
lectively, "Indemnifiable Losses"), asserted against or suffered by
the Buyer relating to, resulting from or arising out of (i) any
breach by PECO Energy of any of the representations and warranties
of PECO Energy contained in or made pursuant to this Agreement or
(ii) any breach by PECO Energy of any covenant or agreement of PECO
Energy contained in this Agreement.
(b) The Buyer will indemnify, defend and hold harm-
less PECO Energy from and against any and all Indemnifiable Losses
asserted against or suffered by PECO Energy relating to, resulting
from or arising out of (i) any breach by the Buyer of any of the
representations and warranties of the Buyer contained in or made
pursuant to this Agreement or (ii) any breach by the Buyer of any
covenant or agreement of the Buyer contained in this Agreement.
(c) Either the person required to provide indemnifi-
cation under this Agreement (the "Indemnifying Party") or the person
entitled to receive indemnification under this Agreement (the
"Indemnitee") may assert any offset or similar right in respect of
its obligations under this Section 8.1 based upon any actual or
alleged breach of any representation, warranty, covenant or agree-
ment contained in this Agreement.
(d) Any Indemnitee having a claim under these indem-
nification provisions shall make a good faith effort to recover all
losses, damages, costs and expenses from insurers of such Indemnitee
under applicable insurance policies so as to reduce the amount of
any Indemnifiable Loss hereunder. The amount of any Indemnifiable
Loss shall be reduced (i) to the extent the Indemnitee receives any
insurance proceeds with respect to an Indemnifiable Loss and (ii) to
take into account any net Tax benefit recognized by the Indemnitee
arising from the recognition of the Indemnifiable Loss and any pay-
ment actually received with respect to an Indemnifiable Loss.
(e) The expiration, termination or extinguishment of
any covenant, agreement, representation or warranty pursuant to
Section 9.3 shall not affect the parties' obligations under this
Section 8.1 if the Indemnitee provided the Indemnifying Party with
proper notice of the claim or event for which indemnification is
sought prior to such expiration, termination or extinguishment.
(f) PECO Energy and the Buyer shall have indemnifica-
tion obligations with respect to Indemnifiable Losses asserted
against or suffered by PECO Energy or the Buyer, as the case may be,
to the extent that the aggregate of all such Indemnifiable Losses
exceed the Indemnification Basket (as hereinafter defined), but not
in excess of $10,000,000, it being agreed and understood that
neither PECO Energy nor the Buyer, as the case may be, shall have
any liability at any time for Indemnifiable Losses asserted against
or suffered by PECO Energy or the Buyer in an amount that is less
than or equal to the then current Indemnification Basket. The term
"Indemnification Basket" shall mean an amount equal to no more than
$500,000.
8.2. Defense of Claims. (a) If any Indemnitee
receives notice of the assertion of any claim or of the commencement
of any claim, action, or proceeding made or brought by any person
who is not a party to this Agreement or an affiliate of a party to
this Agreement (a "Third Party Claim") with respect to which indem-
nification is to be sought from an Indemnifying Party, the Indemni-
tee will give such Indemnifying Party reasonably prompt written
notice thereof, but in any event not later than ten (10) calendar
days after the Indemnitee's receipt of notice of such Third Party
Claim. Such notice shall describe the nature of the Third Party
Claim in reasonable detail and will indicate the estimated amount,
if practicable, of the Indemnifiable Loss that has been or may be
sustained by the Indemnitee. The Indemnifying Party will have the
right to participate in or, by giving written notice to the Indemni-
tee, to elect to assume the defense of any Third Party Claim at such
Indemnifying Party's own expense and by such Indemnifying Party's
own counsel, and the Indemnitee will cooperate in good faith in such
defense at such Indemnitee's own expense.
(b) If within ten (10) calendar days after an Indem-
nitee provides written notice to the Indemnifying Party of any Third
Party Claim the Indemnitee receives written notice from the Indemni-
fying Party that such Indemnifying Party has elected to assume the
defense of such Third Party Claim as provided in the last sentence
of Section 8.2(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection
with the defense thereof; provided, however, that if the Indemnify-
ing Party fails to take reasonable steps necessary to defend dili-
gently such Third Party Claim within twenty (20) calendar days after
receiving notice from the Indemnitee that the Indemnitee believes
the Indemnifying Party has failed to take such steps, the Indemnitee
may assume its own defense, and the Indemnifying Party will be
liable for all reasonable expenses thereof. Without the prior
written consent of the Indemnitee, the Indemnifying Party will not
enter into any settlement of any Third Party Claim which would lead
to liability or create any financial or other obligation on the part
of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a
Third Party Claim without leading to liability or the creation of a
financial or other obligation on the part of the Indemnitee for
which the Indemnitee is not entitled to indemnification hereunder
and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party will give written notice to the
Indemnitee to that effect. If the Indemnitee fails to consent to
such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnitee may continue to contest or defend such
Third Party Claim and, in such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim will be the amount
of such settlement offer, plus reasonable costs and expenses paid or
incurred by the Indemnitee up to the date of such notice.
(c) Any claim by an Indemnitee on account of an
Indemnifiable Loss which does not result from a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party
reasonably prompt written notice thereof, stating the nature of such
claim in reasonable detail and indicating the estimated amount, if
practicable, but in any event not later than ten (10) calendar days
after the Indemnitee becomes aware of such Direct Claim, and the
Indemnifying Party will have a period of thirty (30) calendar days
within which to respond to such Direct Claim. If the Indemnifying
Party does not respond within such thirty (30) calendar day period,
the Indemnifying Party will be deemed to have accepted such claim.
If the Indemnifying Party rejects such claim, the Indemnitee will be
free to seek enforcement of its rights to indemnification under this
Agreement.
(d) If the amount of any Indemnifiable Loss, at any
time subsequent to the making of an indemnity payment in respect
thereof, is reduced by recovery, settlement or otherwise under or
pursuant to any insurance coverage, or pursuant to any claim, recov-
ery, settlement or payment by or against any other entity, the
amount of such reduction, less any costs, expenses or premiums
incurred in connection therewith (together with interest thereon
from the date of payment thereof), will promptly be repaid by the
Indemnitee to the Indemnifying Party. Upon making any indemnity
payment, the Indemnifying Party will, to the extent of such indemni-
ty payment, be subrogated to all rights of the Indemnitee against
any Third Party in respect of the indemnifiable Loss to which the
indemnity payment relates; provided, however, that (i) the Indemni-
fying Party will then be in compliance with its obligations under
this Agreement in respect of such Indemnifiable Loss and (ii) until
the Indemnitee recovers full payment of its Indemnifiable Loss, any
and all claims of the Indemnifying Party against any such third
party on account of said indemnity payment is hereby made expressly
subordinated and subjected in right of payment to the Indemnitee's
rights against such third party. Without limiting the generality or
effect of any other provision hereof, each such Indemnitee and
Indemnifying Party will duly execute upon request all instruments
reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights.
(e) A failure to give timely notice as provided in
this Section 8.2 will not affect the rights or obligations of any
party hereunder except if, and only to the extent that, as a result
of such failure, the party which was entitled to receive such notice
was actually prejudiced as a result of such failure.
8.3. Tax Indemnification. (a) PECO Energy will be
responsible for, will pay or cause to be paid, and will indemnify
and hold harmless the Buyer from and against each and all of the
following:
(i) any and all Taxes resulting from (A) the
Election made pursuant to Section 5.14 hereof; and (B)
the transfers of the 500kV Peach Bottom-Keeney trans-
mission line, the Elkton Service Center and certain
other properties of the Company as described in Sec-
tion 5.16 hereof;
(ii) any and all Taxes with respect to any tax-
able period of the Company ending on or before the
Closing Date, other than those Taxes listed in clause
(i) above;
(iii) any and all Taxes resulting from the Com-
pany having been (or ceasing to be) included in any
affiliated, consolidated, combined, or unitary Tax
Return that PECO Energy included the Company for any
taxable period (or portion thereof) ending on or prior
to the Closing Date (including without limitation (A)
any liability for Taxes resulting from a "deferred
intercompany transaction," within the meaning of Trea-
sury Regulation Section 1.1502-13(a)(2) (or any anal-
ogous or similar provision under state, local or for-
eign law), that occurred on or prior to the Closing
Date) and (B) any liability of the Company pursuant to
Treasury Regulation Section 1.1502-6(a) or any analo-
gous or similar state, local or foreign law;
(iv) any breach by PECO Energy of any represen-
tation, warranty, agreement or covenant contained in
Sections 3.20, 5.1(n), 5.13, 5.14, 5.15 and 5.16 here-
of or this Section 8.3; and
(v) any and all Taxes allocated to PECO Energy
pursuant to Section 8.3(c) hereof.
Notwithstanding the foregoing, PECO Energy shall indemnify the
Buyer for the Taxes described in clauses (ii) through (v) only to
the extent that the sum of such Taxes described in clauses (ii)
through (v) exceeds the amount reserved therefor on the Closing Bal-
ance Sheet of the Company.
(b) The Buyer shall indemnify PECO Energy and its
affiliates and hold them harmless from and against any and all lia-
bility for Taxes of the Company for any taxable period ending after
the Closing Date (except to the extent such taxable period began
before the Closing Date, in which case the Buyer's indemnity will
cover only that portion of any such Taxes that are not for the Pre-
Closing Tax Period (as hereinafter defined).
(c) Taxes attributable to the taxable period of the
Company beginning before the Closing Date and ending after the
Closing Date (the "Overlap Period") shall be apportioned between the
portion of such Overlap Period ending on the Closing Date (the "Pre-
Closing Tax Period") and the portion of such period ending after the
Closing Date on the basis of an interim closing of the books. With
respect to any Tax Return required to be filed by the Buyer for the
Overlap Period, the Buyer shall provide PECO Energy with a statement
calculating in reasonable detail the amount of Tax that is allocable
to PECO Energy pursuant to this Section 8.3(c) (a "Statement") and
copies of all relevant Tax Returns at least twenty business days
prior to the due date for filing of such Tax Return (including
extensions). Not later than five business days before the due date
for payment of Taxes with respect to such Tax Return, PECO Energy
shall pay to the Buyer an amount equal to the Taxes shown on the
Statement that are allocable to PECO Energy pursuant to this Section
8.3(c); provided, however, that if PECO Energy and the Buyer are
unable to agree on the amount of PECO Energy's indemnification
obligation hereunder, such dispute will be settled by the Settlement
Auditor whose fees and expenses shall be paid by the Buyer and PECO
Energy in proportion to each party's respective liability for Taxes
as determined by the Settlement Auditor, and PECO Energy shall pay
the amount determined by the Settlement Auditor within five days of
such determination. Any payment by PECO Energy as determined by the
Settlement Auditor shall bear interest from the date such Taxes were
due to be paid at a rate calculated based on a per annum rate
computed on the basis of a 365 day year and equal to the average of
the high and low bid rates for federal funds on such due date as
such bid rates were published in The Wall Street Journal (Eastern
Edition). No payment pursuant to this Section 8.3(c) shall excuse
PECO Energy from its indemnification obligations pursuant to Section
8.3(a) hereof should the amount of Taxes as ultimately determined
(on audit or otherwise), for the periods covered by such Tax Returns
and which are the responsibility of PECO Energy, exceed the amount
of PECO Energy's payment under this Section 8.3(c).
(d) If a claim, audit, adjustment, examination or
other claim or adjustment shall be made by any taxing authority
concerning Taxes covered in Section 8.3(a) hereof, the party seeking
indemnification the ("Tax Indemnified Party") shall promptly notify
the other party (the "Tax Indemnifying Party") in writing of such
claim (the "Tax Claim"). If a notice of a Tax Claim (the "Tax
Notice") is not given to the Tax Indemnifying Party within a reason-
ably sufficient time to allow the Tax Indemnifying Party effectively
to contest such Tax Claim, or in reasonable detail to apprise the
Tax Indemnifying Party of the nature of the Tax Claim, taking into
account the facts and circumstances with respect to such Tax Claim,
the Tax Indemnifying Party shall not be liable to the Tax Indem-
nified Party or any of its affiliates to the extent (but only to
such extent) that the Tax Indemnifying Party's position is actually
prejudiced as a result thereof.
With respect to any Tax Claim which might result in an
indemnity payment to the Buyer pursuant to Section 8.3(a), PECO
Energy shall, to the extent permitted by law, control all proceed-
ings taken in connection with such Tax Claim (including, without
limitation, selection of counsel) and, without limiting the forego-
ing, may in its sole discretion at its sole expense pursue or forego
any and all administrative appeals, proceedings, hearings and
conferences with any taxing authority with respect thereto, and may,
in its sole discretion, either pay the Tax claimed and sue for a
refund where applicable law permits such refund suits or contest
such Tax Claim in any permissible manner. In no case shall the
Buyer settle or compromise any Tax Claim referred to in the preced-
ing sentence without PECO Energy's prior written consent; provided,
however, that the Buyer shall be entitled to settle or compromise
such Tax Claim in the event it waives its rights to any indemnity
payment with respect thereto and; provided, further, that such
settlement or compromise will not, in PECO Energy's sole discretion,
increase PECO Energy's obligation under Section 8.3(a). The Buyer
shall cooperate with PECO Energy in contesting such Tax Claim, which
cooperation shall include, without limitation, the reasonable reten-
tion and (upon PECO Energy's request) the provision to PECO Energy
of records and information which are reasonably relevant to such Tax
Claim, and making employees available to provide additional informa-
tion or explanation of any material provided hereunder or to testify
at proceedings relating to such Tax Claim, all at PECO Energy's
expense.
(e) PECO Energy shall include, or cause to be includ-
ed, the Company in (i) the United States consolidated federal income
Tax Return of PECO Energy for the taxable periods of the Company
ending on December 31 of the calendar year immediately preceding the
calendar year in which the Closing Date occurs and the taxable
period of the Company ending on the Closing Date, and (ii) all other
consolidated and all affiliated, combined, or unitary Tax Returns of
PECO Energy or its affiliates for the taxable period of the Company
ending on December 31 of the calendar year immediately preceding the
calendar year in which the Closing Date occurs and the taxable
period ending on the Closing Date to the extent permitted or re-
quired by applicable law. Such Tax Returns referred to in clauses
(i) and (ii) above are referred to as "PECO Energy Consolidated or
Combined Returns." PECO Energy shall prepare, or cause to be
prepared, and timely file, or cause to be timely filed, all PECO
Energy Consolidated or Combined Returns which include the Company or
its assets or operations for all taxable periods of the Company
ending on or prior to the Closing Date (which Tax Returns shall
include the Company and the reportable items from the assets or
operations of the Company through and including the Closing Date).
PECO Energy also shall prepare, or cause to be prepared, and timely
file, or cause to be timely filed, all other Tax Returns of or which
include the Company or its assets or operations with respect to any
taxable period ending on or prior to the Closing Date. PECO Energy
shall pay all Taxes shown to be due on such Tax Returns. The Buyer
shall prepare, or cause to be prepared, and file, or cause to be
filed, all Tax Returns of the Company which PECO Energy is not
required to file pursuant to this Section 8.3(e). PECO Energy and
the Buyer shall cooperate fully with each other, and make available
to each other in a timely fashion, such Tax data and other infor-
mation as may be reasonably required by PECO Energy or the Buyer, in
connection with the preparation or filing of any Tax Returns de-
scribed in Section 8.3. Any Tax Returns required to be filed by
PECO Energy pursuant to this Section 8.3(e) shall be reviewed by an
accounting firm of national standing prior to their submission to
the Buyer.
(f) PECO Energy and the Buyer will provide to each
other, and the Buyer will cause the Company to provide to PECO
Energy, full access, at any reasonable time and from time to time
after the Closing Date, at the business location at which the books
and records of the Company are maintained, to such Tax data relating
solely to the Company as PECO Energy or the Buyer, as the case may
be, may from time to time reasonably request and will furnish, and
request the independent accountants and legal counsel of PECO
Energy, the Buyer or the Company to furnish to PECO Energy or the
Buyer, as the case may be, such additional Tax and other information
and documents relating solely to the Company in the possession of
such persons as PECO Energy or the Buyer may from time to time
reasonably request. In particular, PECO Energy will provide to the
Buyer, to the extent requested by the Buyer, true and complete
copies of all separate Tax Returns (and related workpapers) of the
Company and such portions of the affiliated, consolidated, combined
or unitary Tax Returns of affiliated groups of which the Company was
a member (and related workpapers), in each case to the extent such
returns or such portions related exclusively to the Company.
(g) PECO Energy shall be responsible for, shall pay
or cause to be paid, and shall indemnify and hold harmless the Buyer
or the Company from and against any liability of the Company arising
under any Tax sharing, Tax indemnity, Tax allocation or similar
contracts (whether or not written) to which the Company is a party
or is obligated thereunder on or prior to the Closing Date.
(h) Any refunds, carrybacks or credits of Taxes of
the Company for any taxable period ending on or before the Closing
Date shall be for the account of PECO Energy and shall be paid by
the Buyer to PECO Energy within ten days after the Buyer receives
such refund. Any refunds or credits of Taxes of the Company for any
taxable period beginning after the Closing Date shall be for the
account of the Buyer and shall be paid by PECO Energy to the Buyer
within ten days after PECO Energy receives such refund. Any refunds
or credits of Taxes of the Company for any Overlap Period shall be
allocated between PECO Energy and the Buyer on the basis of an
interim closing of the books.
8.4. Tax Exclusivity. This Article VIII shall be the
exclusive remedy for all Tax matters.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1. Amendment and Modification. Subject to applica-
ble law, this Agreement may be amended, modified or supplemented
only by written agreement of PECO Energy and the Buyer.
9.2. Waiver of Compliance; Consents. Except as
otherwise provided in this Agreement, any failure of any of the
parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the party entitled to the benefits
thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
9.3. Survival of Representations and Warranties.
Subject to the provisions of Section 7.2, the representations and
warranties contained in this Agreement and the Schedules will
survive the Closing and will remain in full force and effect there-
after (a) until the expiration of the applicable statute of limita-
tion in the case of the representations and warranties of PECO
Energy set forth in Section 3.20, (b) until the third anniversary of
the Closing Date in the case of the representations and warranties
set forth in Section 3.13 and (c) until the first anniversary of the
Closing Date in the case of all other representations and warranties
set forth in Articles III and IV hereof. Subject to the provisions
of Section 7.2, the covenants and agreements contained in this
Agreement shall expire on the Closing Date (other than the covenants
and agreements contained in Sections 5.2(b), 5.3, 5.4, 5.7, 5.8,
5.10, 5.12, 5.13, 5.14, 5.15, 5.16(b), 5.18 and Article VIII, which
shall survive the Closing Date in accordance with their respective
terms).
9.4. Indemnification and Adjustment Payments. Unless
otherwise required by law, PECO Energy and the Buyer agree that any
payment made by PECO Energy to the Buyer or by the Buyer to PECO
Energy under Section 1.4 or ARTICLE VIII hereof will be treated by
the parties on their Tax Returns as an adjustment to the consider-
ation paid by the Buyer for the Company and shall take no position
to the contrary in any audit, examination or administrative proceed-
ing.
9.5. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally or by facsimile transmission, telexed or mailed by
registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice; provided
that notices of a change of address shall be effective only upon
receipt thereof):
(a) If to PECO Energy, to:
PECO Energy Company
2301 Market, Box 8699
Philadelphia, Pennsylvania
Attention: Gregory A. Cucchi
Vice President-Planning and Performance
with copies to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Attention: Sheldon S. Adler, Esq.
(b) if to the Buyer, to:
Delmarva Power & Light Company
800 King Street
Wilmington, Delaware 19899
Attention: Thomas S. Shaw
with copies to:
LeBoeuf, Lamb, Greene & MacRae
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
9.6. Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights or inter-
ests hereunder shall be assigned or obligations delegated by any
party hereto, including by operation of law without the prior
written consent of the other party.
9.7. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York (without regard to any New York law or rule requiring the
application of the laws of any other jurisdiction) as to all mat-
ters, including but not limited to matters of validity, construc-
tion, effect, performance and remedies.
9.8. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instru-
ment.
9.9. Interpretation. The article and section head-
ings contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the parties and shall
not in any way affect the meaning or interpretation of this Agree-
ment. As used in this Agreement, the term "person" shall mean and
include an individual, a partnership, a joint venture, a corpora-
tion, a trust, an unincorporated organization and a governmental
entity or any department or agency thereof. As used in this Agree-
ment, the term "Permitted Exceptions" shall mean and include (i)
those exceptions to title to the properties and assets of the
Company listed in Schedule 3.10; (ii) all exceptions, restrictions,
easements, rights of way and encumbrances set forth in title reports
or title insurance binders which have been made available to the
Buyer prior to the date of this Agreement; (iii) mortgages, liens,
pledges, charges, encumbrances and restrictions which secure debt
that is reflected as a liability on the Company Balance Sheet or
which are otherwise reflected in the Company Balance Sheet or
disclosed in the notes thereto; (iv) mortgages, liens, pledges,
charges, encumbrances and restrictions incurred in connection with
the Company's purchase of properties and assets in the ordinary
course of business after the date of the Company Balance Sheet
securing all or a portion of the purchase price therefor; (v)
statutory liens for current taxes or assessments not yet due or
delinquent or the validity of which is being contested in good faith
by appropriate proceedings; (vi) mechanics', carriers', workers',
repairers' and other similar liens arising or incurred in the
ordinary course of business relating to obligations as to which
there is no default on the part of the Company; (vii) zoning,
entitlement and other land use and environmental regulations by
governmental authorities that are not material to the business and
operations of the Company and (viii) such other liens, imperfections
in title, charges, easements, restrictions and encumbrances which do
not materially detract from the value of or materially interfere
with the present use of any property subject thereto or affected
thereby that is material to the business, operations or financial
condition of the Company or which relate to properties that are not
material to the Company and do not, in the aggregate have a Material
Adverse Effect. As used in this Agreement, the term "subsidiary"
when used in reference to any other person shall mean any corpora-
tion of which outstanding securities having ordinary voting power to
elect a majority of the Board of Directors of such corporation are
owned directly or indirectly by such other person. As used in this
Agreement, the terms "affiliate" and "parent" shall have the mean-
ings set forth in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act. Any statement in this Agreement made to
PECO Energy's knowledge shall be deemed to include the knowledge of
the Company.
9.10. Entire Agreement. This Agreement, including
the documents, schedules, certificates and instruments referred to
herein, and the Confidentiality Agreement embody the entire agree-
ment and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. There are no restric-
tions, promises, representations, warranties, covenants or undertak-
ings, other than those expressly set forth or referred to herein or
therein. This Agreement supersedes all prior agreements and under-
standings between the parties with respect to such transactions
other than the Confidentiality Agreement.
9.11. No Third Party Beneficiary Rights. This Agree-
ment is not intended to and shall not be construed to give any
person or entity other than the parties signatory hereto (or any
duly authorized successor thereto) any interest or rights with
respect to or in connection with any agreement or provision con-
tained herein or contemplated hereby.
<PAGE>
IN WITNESS WHEREOF, PECO Energy and the Buyer have
caused this agreement to be signed by their respective duly autho-
rized officers as of the date first above written.
PECO ENERGY COMPANY
By__________________________
Title_____________________
DELMARVA POWER & LIGHT
COMPANY
By__________________________
Title_____________________
<PAGE>
Annex 1
Calculation of Adjustment Amount (1)
Net Working Capital (as defined below)
- $2,500,000 (required working capital)
+ or - Deferred Fuel Adjustment
+ The greater of (i) 0 and (ii) Cumulative Capi-
tal Expenditures actually made from the date of
the Stock Purchase Agreement until the Closing
Date minus Cumulative Net Earnings from the
date of the Stock Purchase Agreement until the
Closing Date
= Adjustment Amount
Net Working Capital
+ Cash and Temporary Cash Investments
+ Accounts Receivable (Trade)
- Allowance
+ Materials and Supplies
+ Prepayments
+ Accrued Unbilled Revenue
- Accounts Payable
- Customer Deposits
- Accrued State and Local Taxes
- Tax Collections Payable
- Accrued Vacation and Sicktime
- Customer Advances
= Net Working Capital
1 Determined in accordance with the information set forth in the Closing
Balance Sheet (as defined in Section 1.3 of the Stock Purchase Agreement).
2 Accounts Receivable (Trade) shall include only those accounts receivable
actually collected within the 90 day period following the Closing Date.
3 Calculation method to be based upon the output method in a manner applied
consistently with PECO Energy's past practice.
4 Excluding Taxes resulting from (i) the joint election pursuant to Section
338(h)(10) of the Code provided for in Section 5.14 of the Stock Purchase
Agreement and (ii) the transfers of the 500kV Peach Bottom-Keeney
transmission line, the Elkton Service Center and certain other properties
of the Company pursuant to Section 5.16 of the Stock Purchase Agreement,
which shall be the sole obligation of PECO Energy as provided in the Stock
Purchase Agreement.
5 Excluding Taxes resulting from (i) the joint election pursuant to Section
338(h)(10) of the Code provided for in Section 5.14 of the Stock Purchase
Agreement and (ii) the transfers of the 500kV Peach Bottom-Keeney
transmission line, the Elkton Service Center and certain other properties
of the Company pursuant to Section 5.16 of the Stock Purchase Agreement,
which shall be the sole obligation of PECO Energy as provided in the Stock
Purchase Agreement.
<PAGE>
Annex 2
Terms and Conditions of Service Center Lease
PECO Energy and Buyer shall on the Closing Date enter
into the Service Center Lease (as hereinafter defined) for
the Elkton Service Center, between PECO Energy, as land-
lord, and Buyer, as tenant. PECO Energy shall deliver a
proposed form of lease for the Elkton Service Center (the
"Service Center Lease") to Buyer on or prior to June 30,
1994, which lease shall be between PECO Energy, as land-
lord, and Buyer, as tenant, and shall contain provisions
consistent with the following terms (the "Required Terms"):
(a) the Service Center Lease shall be a net
lease, with Buyer obligated to (i) maintain,
repair and operate the Elkton Service Center
at Buyer's sole cost and expense throughout
the term of the Service Center Lease and de-
liver the same at the end of the term in the
same condition that existed upon lease com-
mencement, except for ordinary wear and
tear, and (ii) pay all real estate taxes and
assessments attributable to the premises.
(b) the Service Center Lease will commence on
the Closing Date and will be for a term of
the earlier of three years from the Closing
Date or the end 30 days after the New Ser-
vice/HQ Building is substantially completed
(the "Initial Term").
(c) the rent payable under the Service Center
Lease shall be $1 per year for each year of
the Initial Term. For any extension of the
Initial Term, the rent shall be a commer-
cially reasonable amount, to be agreed upon
by the parties hereto.
(d) the Elkton Service Center will be delivered
by PECO Energy, and accepted by Buyer, in
its "as is" condition.
(e) neither PECO Energy nor any of its subsid-
iaries shall be required to provide any ser-
vices or utilities to the premises, all of
which will be provided and obtained, as the
case may be, by Buyer, at Buyer's sole cost
and expense.
(f) Buyer shall be required to maintain such
insurance as is reasonably required by PECO
Energy.
(g) Buyer shall operate the Elkton Service Cen-
ter in full compliance with Environmental
Law, and Buyer's operation of the Elkton
Service Center shall not cause PECO Energy
to be out of compliance with Environmental
Law.
(h) Buyer shall, as necessary, clean up and take
all other action necessary to assure that
PECO Energy does not at any time suffer or
have asserted against it, either directly or
indirectly, any claim, loss or liability re-
lating to the presence, release or threat-
ened release of Hazardous Materials in or on
the Elkton Service Center relating to the
operations, actions or omission to act of
Buyer.
(i) Buyer shall not, without the permission of
PECO Energy, which shall not be unreasonably
withheld, use or allow Hazardous Materials
at the Elkton Service Center in materially
greater amounts, or of different kinds (oth-
er than de minimis use), as compared to pri-
or to the Closing Date.
(j) Buyer shall promptly report to PECO Energy
any disposal or release of Hazardous Mate-
rials during Buyer's leasehold in, on or
from the Elkton Service Center other than de
minimis releases relating to ordinary opera-
tions which are promptly cleaned up and re-
leases made in compliance with Environmental
Law.
(k) Buyer shall permit PECO Energy and any envi-
ronmental consultants of PECO Energy at all
reasonable times to inspect the Elkton Ser-
vice Center and Buyer's operations thereat.
(l) Buyer shall not, except to the extent re-
quired by law, disclose to a third party any
facts or information relating to environmen-
tal conditions at the Elkton Service Center
which are the responsibility of PECO Energy,
or otherwise instigate any claim, demand or
requirement by any third party with respect
to such environmental conditions.
(m) Buyer shall not have the right to perform
alterations within the premises, assign the
lease, or sublet all or any portion of the
premises, without PECO Energy's prior writ-
ten consent, which consent may be withheld
in PECO Energy's sole discretion.
(n) the lease shall contain a general indemnity,
pursuant to which Buyer shall indemnify and
hold PECO Energy, its subsidiaries and af-
filiates (the "PECO Group") harmless from
and against any and all liability, cost, ex-
pense and damage suffered by the PECO Group
which relates to, results from or arises out
of any breach by the Buyer of any term or
condition of the lease.
The Service Center Lease shall also contain such other
customary commercial lease provisions for similar leases
reasonably required by PECO Energy and the Buyer, provided
that the same shall not be inconsistent with the Required
Terms.
<PAGE>
Schedule 3.1 Organization; Qualification.
Commonwealth of Pennsylvania
<PAGE>
Schedule 3.5 Consents and Approvals; No Violation.
None
<PAGE>
Schedule 3.8 Undisclosed Liabilities.
None
<PAGE>
Schedule 3.9 Absence of Certain Changes or Events.
(d) Proposed Health Plan Amendment requiring retiree
contribution for medical coverage.
<PAGE>
Schedule 3.10 Title and Related Matters.
FEE PROPERTY OWNED BY
CONOWINGO POWER COMPANY
1897 0.057 Northeast Substation
1939 0.280 Chesapeake City Substation
3145 0.172 Kilby Substation
3637 0.689 Liberty Grove Substation
3668 0.737 Oldfield 33-4 KV Substation
3701 0.389 Perryville Storage Bldg.
3705 0.075 Rising Sun Substation
3711 2.4 Elkton Service Bldg.
3712 0.247 Elkton Service Bldg.
3713 41.880 Cecil Substation
3714 9.930 Cecil Substation
3715 8.354 Cecil Substation
3716 0.743 Glen Substation
3720 0.689 Cathers Substation
3721 0.680 Andora Substation
3725 0.779 Normina 33-4 KV Substation
3727 0.670 Irishtown 33-4 KV Substation
3736 0.745 Mechanics 33-4 KV Substation
3749 0.642 Harris Substation
3751 0.689 Charles Substation
3752 0.792 Appleton Substation
3753 0.780 Macton Substation
3754 0.978 Gilpins Substation
3755 0.688 Prince Substation
3756 1.0 Bohemia 33-4 KV Substation
3757 0.681 Middle 33-4 Substation
3758 0.775 Perch Substation
3759 0.680 Elkneck 33-4 KV Substation
3771 0.531 Harford 33-4 KV Substation
3773 0.459 Gallion Substation
3784 4.419 Elkton Pole Storage
3793 0.559 Leslie 33-4 Substation
3794 0.643 Calvert 33-4 KV Substation
3796 0.158 Elkton Service Building
3807 0.671 Greenbank 33-4 KV Substation
3811 0.497 Cayots 33-4 KV Substation
3812 0.476 Cayots 33-4 KV Substation
3813 0.612 Triumph Substation
4073 0.325 Theodore 33-4 KV Substation
4078 13.15 New Service Building Site
6138 16.079 Colora 220-33 KV Substation
6101 3.8 Peach Bottom/Keeney Corridor
6118 26.306 Peach Bottom/Keeney Corridor
6119 21.589 Peach Bottom/Keeney Corridor
6120 15.44 Peach Bottom/Keeney Corridor
6121 6.304 Peach Bottom/Keeney Corridor
6123 7.355 Peach Bottom/Keeney Corridor
6124 25.984 Peach Bottom/Keeney Corridor
6125 4.356 Peach Bottom/Keeney Corridor
6126 19.452 Peach Bottom/Keeney Corridor
6127 1.930 Peach Bottom/Keeney Corridor
6128 4.069 Peach Bottom/Keeney Corridor
6129 26.345 Peach Bottom/Keeney Corridor
6130 11.827 Peach Bottom/Keeney Corridor
6131 26.929 Peach Bottom/Keeney Corridor
6132 9.107 Peach Bottom/Keeney Corridor
6133 42.555 Peach Bottom/Keeney Corridor
6134 11.327 Peach Bottom/Keeney Corridor
6135 14.342 Peach Bottom/Keeney Corridor
6136 3.654 Peach Bottom/Keeney Corridor
6137 8.858 Peach Bottom/Keeney Corridor
6138 16.079 Colora Substation
6138 67.826 Peach Bottom/Keeney Corridor
6139 20.707 Peach Bottom/Keeney Corridor
6140 17.879 Peach Bottom/Keeney Corridor
6141 5.841 Peach Bottom/Keeney Corridor
6142 62.64 Peach Bottom/Keeney Corridor
6143 15.639 Peach Bottom/Keeney Corridor
6145 10.424 Peach Bottom/Keeney Corridor
6146 34.75 Peach Bottom/Keeney Corridor
6147 9.074 Peach Bottom/Keeney Corridor
6148 14.952 Peach Bottom/Keeney Corridor
6149 15.786 Peach Bottom/Keeney Corridor
6150 16.921 Peach Bottom/Keeney Corridor
6151 24.218 Peach Bottom/Keeney Corridor
6152 6.576 Peach Bottom/Keeney Corridor
6153 27.395 Peach Bottom/Keeney Corridor
6154 23.34 Peach Bottom/Keeney Corridor
6155 2.994 Peach Bottom/Keeney Corridor
6156 23.375 Peach Bottom/Keeney Corridor
6157 10.663 Peach Bottom/Keeney Corridor
6158 11.157 Peach Bottom/Keeney Corridor
6159 7.428 Peach Bottom/Keeney Corridor
6160 18.515 Peach Bottom/Keeney Corridor
6161 1.916 Peach Bottom/Keeney Corridor
6162 1.248 Peach Bottom/Keeney Corridor
6163 29.843 Peach Bottom/Keeney Corridor
6164 12.998 Peach Bottom/Keeney Corridor
6166 2.711 Peach Bottom/Keeney Corridor
6167 3.757 Peach Bottom/Keeney Corridor
6168 54.509 Peach Bottom/Keeney Corridor
6169 6.111 Peach Bottom/Keeney Corridor
6172 63.974 Peach Bottom/Keeney Corridor
6173 11.078 Peach Bottom/Keeney Corridor
6174 6.311 Peach Bottom/Keeney Corridor
6175 5.605 Peach Bottom/Keeney Corridor
6176 10.208 Peach Bottom/Keeney Corridor
6177 36.0 Peach Bottom/Keeney Corridor
6178 9.469 Peach Bottom/Keeney Corridor
6179 10.086 Peach Bottom/Keeney Corridor
6180 0.461 Peach Bottom/Keeney Corridor
6181 44.715 Peach Bottom/Keeney Corridor
6182 0.550 Peach Bottom/Keeney Corridor
6184 15.456 Peach Bottom/Keeney Corridor
6185 44.705 Peach Bottom/Keeney Corridor
6187 21.515 Peach Bottom/Keeney Corridor
6188 21.232 Peach Bottom/Keeney Corridor
6189 18.655 Peach Bottom/Keeney Corridor
6191 4.916 Peach Bottom/Keeney Corridor
6192 5.294 Peach Bottom/Keeney Corridor
6193 3.621 Peach Bottom/Keeney Corridor
6195 11.426 Peach Bottom/Keeney Corridor
6196 13.124 Peach Bottom/Keeney Corridor
6197 1.052 Peach Bottom/Keeney Corridor
6198 9.813 Peach Bottom/Keeney Corridor
6199 3.522 Peach Bottom/Keeney Corridor
6200 12.925 Peach Bottom/Keeney Corridor
6204 9.164 Peach Bottom/Keeney Corridor
6206 0.115 Peach Bottom/Keeney Corridor
6209 0.372 Peach Bottom/Keeney Corridor
6211 10.360 Peach Bottom/Keeney Corridor
9995 0.169 Elkton Service Building
<PAGE>
Schedule 3.11 Leases.
None
<PAGE>
Schedule 3.12 Insurance.
None
<PAGE>
Schedule 3.13 Environmental Matters.
(iii) U.S. Environmental Protection Agency letter
dated August 23, 1988;
U.S. Environmental Protection Agency letter
dated September 3, 1985;
U.S. Environmental Protection Agency letter
dated April 17, 1987;
U.S. Environmental Protection Agency letter
dated July, 1991.
(iv) Underground Storage Tanks
1000 gallon underground waste oil storage tank
10,000 gallon underground gasoline tank
400 gallon underground diesel fuel tank
2000 gallon underground heating oil tank
All of the above items are located at Elkton
Service Center.
<PAGE>
Schedule 3.14 Labor Matters.
1. OFCPP Consolidation Agreement as fully described in
the PECO Energy June 30, 1992 Quarterly Report to
the SEC on Form 10-Q (page 26).
2. Two Company employees are part of the class of
plaintiffs in the Fisher/Kurz class action lawsuits,
described in PECO Energy's Annual Report to the SEC
on Form 10-K (Page 27)
3. Election Bar Period for PECO Energy Company, with
respect to a representation petition filing, expires
on June 22, 1994, after which a union may file a
representation petition. Currently there is no
unfair labor practice charge against the Company
pending before the National Labor Relations Board;
however, it is common in a representation petition
filing to file unfair labor practice charges.
<PAGE>
Schedule 3.15 ERISA; Benefit Plans.
1. PECO Energy Severance Benefit Plan
2. 1994 Voluntary Separation Incentive Program
3. 1994 Voluntary Retirement Incentive Plan
4. PECO Energy Medical Benefits Plan
5. PECO Energy Dental Benefits Plan
6. PECO Energy Group Life Insurance
7. PECO Energy Employee Savings Plan
8. PECO Energy Service Annuity Plan
9. PECO Energy Dependent Life Insurance Plan
10. PECO Energy Accidental Death and Dismemberment Plan
11. PECO Energy Short-Term Disability Plan
12. PECO Energy Long-Term Disability Plan
13. PECO Energy Beneficial Association Special Benefit
Plan
14. PECO Energy Beneficial Association (Employee Associ-
ation and Athletic Association)
15. PECO Energy Health Care Flexible Spending Account
16. PECO Energy Dependent Care Assistance Flexible
Spending Account
17. PECO Energy SILO Merchandise Plan
18. PECO Energy Employee Assistance Plan
19. PECO Energy Occupational Hazard Plan
20. PECO Energy Travel Accident Plan
21. PECO Energy Disabilitant Payroll Plan
22. PECO Energy Tuition Refund Plan
23. PECO Energy Deferred Compensation and Supplemental
Retirement Benefit Plan
24. PECO Energy Management Group Deferred Compensation
and Retirement Benefit Plan
25. PECO Energy 1989 Long-Term Incentive Plan
26. PECO Energy Incentive Compensation Plan
27. PECO Energy Management Incentive Compensation Plan
28. PECO Energy Quarter Century Club (one free dinner)
<PAGE>
Schedule 3.16 Certain Contracts and Arrangements.
Master Leasing Agreement, dated as of June 1, 1986, be-
tween BLC Corporation and Conowingo Power Company.
<PAGE>
Schedule 3.17 Legal Proceedings; etc.
None
<PAGE>
Schedule 3.18 Permits.
None
<PAGE>
Schedule 3.19 Regulation as a Utility.
3.19(a)
State of Maryland
3.19(b)
Commonwealth of Pennsylvania
<PAGE>
Schedule 3.20 Taxes
3.20(a)
Agreement by PECO Energy extending the statutory
period of limitation to 1995 for federal income
taxes for the years 1987-90.
3.20(b)
IRS Power of Attorney (IRS Form 4828) granted by
PECO Energy Company to Louis W. Ricker, Esq. and
Steven G. Lioce, Esq. with respect to federal income
tax matters (Form 1120) for the years 1987-90.
<PAGE>
Schedule 4.3 Consents and Approvals; No Violation.
None
<PAGE>
Schedule 5.1 Conduct of Business of the Company.
5.1(c)
Proposed Retiree Health Plan amendment requiring
retiree contribution for medical coverage.
5.1(s) Regulatory Filings.
MPSC
ECR (rate filing and semi-annual status reports)
DSM Rider (rate filing and semi-annual interim DSM
updates)
Environmental surcharge
COPCO 10-year plan
Section 69(b) filing (due January 1995)
Monthly earnings reports
MPSC Assessment filing
NARUC Rate Report
E2R2 Report
FERC
Monthly Fuel Adjustment
<PAGE>
Schedule 5.16(a)
Company will retain ownership of all facilities
associated with the transmission and distribution lines
addressed by the following perpetual easements and rights
of way to be retained by Company.
1. A perpetual easement to a strip of ground approxi-
mately 170 feet wide located on the south side of the
Peach Bottom-Keeney transmission corridor from the Colora
Substation to the point where the Cecil/Colora Transmis-
sion Line crosses Interstate Highway 95. The easement
will provide Company the rights required to operate,
maintain, repair and replace existing transmission and
distribution facilities within the easement area and to
install, operate, maintain, repair, and replace addition-
al transmission or distribution facilities within the
easement area together with the necessary rights for
access across PECO Energy property or easements and
vegetation trimming rights.
2. A perpetual easement to a strip of ground approxi-
mately 125 feet wide located on the south side of the
Peach Bottom-Keeney transmission corridor from the Dela-
ware State Line to a point where the existing 138 KV
transmission line enters the existing AMTRAK corridor.
The easement will provide Company the rights required to
operate, maintain, repair and replace existing transmis-
sion and distribute facilities within the easement area
and to install, operate, maintain, repair, and replace
additional transmission or distribution facilities within
the easement area together with the necessary rights for
access across PECO Energy property or easements and
vegetation trimming rights.
3. A perpetual easement to a strip of ground approxi-
mately 170 feet wide located on the north side of the
Peach Bottom-Keeney transmission corridor from the Colora
Substation to the point where the line connects with the
transmission line owned by Susquehanna Power Company.
The easement will provide Company the rights required to
operate, maintain, repair and replace existing transmis-
sion and distribution facilities within the easement area
and to install, operate, maintain, repair, and replace
additional transmission or distribution facilities within
the easement area together with the necessary rights for
access across PECO Energy property or easements and
vegetation trimming rights.
4. A perpetual easement to a strip of ground approxi-
mately 170 feet wide located in the center of the Peach
Bottom-Keeney transmission corridor from the Colora
Substation to the point where the line connects with the
transmission line owned by Susquehanna Power Company.
The easement will provide Company the rights required to
operate, maintain, repair and replace existing transmis-
sion and distribution facilities within the easement area
and to install, operate, maintain, repair, and replace
additional transmission or distribution facilities within
the easement area together with the necessary rights for
access across PECO Energy property or easements and
vegetation trimming rights. This easement will be sub-
ject to a requirement that the Company or Buyer, at PECO
Energy's request and expense, will relocate the existing
transmission line or any additional facilities added
after Closing to a new easement provided for by PECO
Energy and further subject to the requirement that PECO
Energy shall coordinate any required relocation with
Buyer to minimize disruption of service by Buyer.
5. In addition to the above described perpetual ease-
ments, Company will retain the necessary rights of way to
operate, maintain, renew, repair, and replace the distri-
bution facilities crossing or longitudinally located on
the Peach Bottom-Keeney transmission corridor. These
rights of way will be subject to a requirement that the
Company or Buyer, at PECO Energy's request and expense,
will relocate the distribution facilities to a new ease-
ment provided for by PECO Energy and further subject to
the requirement that PECO Energy shall coordinate any
required relocation with Buyer to minimize disruption of
service by Buyer.
EXHIBIT 10-9
AGREEMENT BETWEEN
PECO ENERGY COMPANY
AND
DELMARVA POWER & LIGHT COMPANY
FOR PURCHASE AND SALE OF
CAPACITY AND ENERGY
May 24, 1994
<PAGE>
AGREEMENT BETWEEN
PECO ENERGY COMPANY
AND
DELMARVA POWER & LIGHT COMPANY
FOR PURCHASE AND SALE OF
CAPACITY AND ENERGY
THIS AGREEMENT is made this 24th day of May, 1994, by and between PECO
Energy Company (PECO), a Pennsylvania corporation with offices located at 2301
Market Street, Philadelphia Pennsylvania 19101, and DELMARVA POWER & LIGHT
COMPANY (DPL), a Delaware and Virginia corporation with offices located at 800
King Street, Wilmington, Delaware 19899 (with PECO or DPL referred to
hereinafter individually as a PARTY and collectively as PARTIES).
WHEREAS, DPL owns and operates an electric supply system in Delaware,
Maryland and Virginia; and
WHEREAS, the PARTIES, together with others, have entered into an
agreement known as the Pennsylvania-New Jersey-Maryland Interconnection
Agreement (PJM AGREEMENT); and
WHEREAS PECO owns and operates either directly or through subsidiaries
an electric generating and supply system in the Commonwealth of Pennsylvania and
the State of Maryland (PECO SYSTEM); and
WHEREAS PECO desires to sell to DPL, and DPL desires to purchase PECO's
existing electric distribution subsidiary located in the State of Maryland known
and operating as Conowingo Power Company (COPCO); and
WHEREAS PECO desires to sell to DPL firm electric energy and capacity
on a long-term basis and DPL desires to buy the same from PECO; and
WHEREAS, PECO and its subsidiary Susquehanna Electric Company
(SUSQUEHANNA) currently supply COPCO's electric capacity and energy requirements
under an agreement known as the Tri-Partite Agreement dated May 1, 1972, as
amended (the TRI-PARTITE AGREEMENT), and PECO, DPL, SUSQUEHANNA and COPCO have
agreed, in a separate agreement dated May 24, 1994, that the effectiveness of,
and sales and purchases under, the TRI-PARTITE AGREEMENT will continue until the
date that sales of capacity and energy commence under this AGREEMENT, at which
time the TRI- PARTITE AGREEMENT will terminate.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, PECO and DPL, intending to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
1.1 Usage. Terms listed in Section 1.2 hereof, when capitalized, shall
have the meanings set forth therein wherever the terms appear in this Agreement,
whether in the singular or the plural or in the present or past tense.
Uncapitalized terms shall have meanings as commonly used in STANDARD UTILITY
PRACTICE.
1.2 Definitions.
AGREEMENT means this Agreement for Purchase and Sale of Capacity and
Energy between PECO and DPL.
ASSET TRANSACTION means the sale by PECO to DPL of all or substantially
all of the stock or assets of COPCO, now owned by PECO.
BREACH means the failure, by an act or an omission to act, of PECO or
DPL to meet any of their material obligations or duties under this AGREEMENT.
CONTRACT CAPACITY means an amount of electrical generating capacity in
MW determined according to Schedule 1 attached hereto and made a part hereof
which PECO has agreed to provide to DPL pursuant to Section 2.2 hereof.
COPCO means Conowingo Power Company, an electric distribution company
located in the State of Maryland.
COPCO SYSTEM means the integrated electric transmission and
distribution system currently owned, operated and maintained by COPCO.
DELAWARE TIES means the 230 kv points of interconnection between the
PECO SYSTEM and the DPL SYSTEM.
DPL means DELMARVA POWER & LIGHT COMPANY.
DPL SYSTEM means the integrated electric generation and transmission
system owned, operated and maintained by DPL.
ENERGY CHARGE RATE means PECO's energy charge per MWH determined
pursuant to Schedule 2 attached hereto and made a part hereof.
FERC means the Federal Energy Regulatory Commission or its successor
agency.
INTERCONNECTION POINT means the point or points where deliveries of
energy under this AGREEMENT are to be made, and which is determined pursuant to
Section 9.1 hereof.
MARYLAND TIES means the points of interconnection between the PECO
SYSTEM and the COPCO SYSTEM.
MW means megawatt.
MWH means megawatt-hour.
MDPSC means the Maryland Public Service Commission or its successor
agency.
PARTIES means PECO and DPL.
PARTY means PECO or DPL.
PECO means PECO Energy Company and its regulated operating
subsidiaries, excluding COPCO.
PECO SYSTEM means the integrated electric generation and transmission
system owned, operated and maintained by PECO.
PJM or PJM INTERCONNECTION means the Pennsylvania-New Jersey-Maryland
Interconnection Association, a power pool formed pursuant to an agreement dated
September 28, 1956, as amended and supplemented (the PJM AGREEMENT) of which DPL
and PECO are signatories.
RESERVE CAPACITY means an amount of electrical generating capacity in
MW hereof determined according to Schedule 1 attached hereto and made a part
hereof which PECO has agreed to provide to DPL pursuant to Section 2.2.
STANDARD UTILITY PRACTICE means, with regard to the design,
construction, maintenance and operation of the PECO SYSTEM, DPL SYSTEM and COPCO
SYSTEM, those methods and that equipment used in established and generally
accepted electrical engineering and operations to operate equipment lawfully,
dependably and efficiently. STANDARD UTILITY PRACTICE is not intended to be
limited to the optimum practice, method, or act to the exclusion of all others
but, rather, to be a spectrum of possible practices, methods, or acts which, in
the exercise of reasonable judgment and in light of the facts known at the time
a decision was made, would have been used in prudent electrical engineering and
operations to accomplish a desired result.
SUSQUEHANNA means Susquehanna Electric Company, a subsidiary of PECO
and party to the TRI-PARTITE AGREEMENT.
TRI-PARTITE AGREEMENT means the agreement dated May 1, 1972, as amended
under which PECO and SUSQUEHANNA currently supply COPCO's electric capacity and
energy requirements.
ARTICLE II
SALE OF ENERGY AND CAPACITY
2.1 Term. This AGREEMENT shall become effective upon the date first
written above, subject to the conditions precedent of Section 2.4 hereof and
shall continue until May 31, 2006, unless this AGREEMENT is sooner terminated in
accordance with its terms. Applicable provisions of this AGREEMENT shall
continue in effect after termination, to the extent necessary to provide for
final billings and adjustments, and to preserve or permit the enforcement of or
institution of action upon any right or obligation under the AGREEMENT.
2.2 Energy and Capacity Purchases. Beginning on the later of the
closing date of the ASSET TRANSACTION or February 1, 1996, and continuing until
termination of this AGREEMENT, PECO shall provide electrical capacity and energy
from the PECO SYSTEM to DPL subject to the terms and conditions as follows:
(A) Capacity. PECO agrees to sell and DPL agrees to buy CONTRACT
CAPACITY and RESERVE CAPACITY from the PECO SYSTEM, in amounts determined
according to Schedule 1 attached hereto and made a part hereof.
(B) Energy. PECO agrees to sell and DPL agrees to buy electrical energy
from the PECO SYSTEM, delivered to the INTERCONNECTION POINT in amounts per hour
determined pursuant to Section 10.3, up to the level of the CONTRACT CAPACITY.
During each time interval shown in Schedule 1, DPL shall buy a minimum amount of
energy in MWH equal to the product of 0.95 multiplied by the CONTRACT CAPACITY
multiplied by the number of hours in the said time interval. PECO shall be
responsible for all transmission losses on its side of the INTERCONNECTION
POINT.
2.3 Continuity of Service. The energy and capacity to be supplied by
PECO under this AGREEMENT shall be provided at a reliability level equivalent to
the level PECO provides its Pennsylvania retail customers. PECO shall not,
without prior authorization by DPL, reduce deliveries of energy below the amount
specified by DPL pursuant to Section 10.3 unless PECO is unable to serve all of
the requirements of its firm Pennsylvania retail customers. In such
circumstances, reductions of energy provided by PECO to DPL shall be
proportional to reductions made by PECO to deliveries of energy to PECO's firm
Pennsylvania retail customers.
2.4 Regulatory Approval. Conditions precedent to PECO's and DPL's
obligations under this AGREEMENT shall be closure of the ASSET TRANSACTION and
acceptance of this AGREEMENT for filing by FERC without modification. PECO shall
submit this AGREEMENT for filing with FERC in a timely manner, and DPL shall use
good faith efforts to assist PECO in this endeavor.
ARTICLE III
PAYMENT
3.1 General. Total charges for purchases by DPL from PECO under this
AGREEMENT shall consist of the sum of three (3) separate charges: an
administrative charge, a capacity charge, and an energy charge, as detailed in
Sections 3.2, 3.3 and 3.4, respectively, hereof. Charges shall be calculated
each month and billed pursuant to Article VIII hereof.
3.2 Administrative Charge. Each month during the term of this
AGREEMENT, DPL shall pay an administrative charge of $1,667.
3.3 Capacity Charge. Each month during the term of this AGREEMENT, DPL
shall pay a capacity charge equal to the product of the Capacity Rate specified
in Schedule 1 multiplied by the sum of the CONTRACT CAPACITY plus the RESERVE
CAPACITY, both determined according to Schedule 1.
3.4 Energy Charge. Each month during the term of this AGREEMENT, DPL
shall pay an energy charge equal to the product of the energy delivered by PECO
and purchased by DPL pursuant to Section 2.2(B) multiplied by an ENERGY CHARGE
RATE determined in a manner prescribed in Schedule 2 attached hereto and made a
part hereof.
ARTICLE IV
RESERVED
ARTICLE V
RESERVED
ARTICLE VI
RESERVED
ARTICLE VII
TERMINATION AND DEFAULT
7.1 Termination by PECO. Except as otherwise provided in Article XV,
PECO may terminate this AGREEMENT without any liability if DPL:
(A) dissolves or liquidates;
(B) enters insolvency proceedings under any insolvency law as debtor;
(C) fails to make any payment due hereunder and such failure shall
continue for twenty (20) days after receipt of notice from PECO demanding such
payment;
(D) fails to cure a BREACH, as defined in Section 1.2, of this
AGREEMENT within 30 days after notice of such BREACH is given by PECO hereunder;
provided, however, if despite the reasonable efforts of DPL such breach is not
curable within such 30 days, then PECO shall not have the right to terminate
this AGREEMENT if a cure is initiated within such 30 days and diligently pursued
thereafter until it is fully implemented, provided that such cure is fully
implemented no later than twelve (12) months after notice.
7.2 Default of PECO. The following shall constitute Defaults of PECO
unless cured within the time frame provided for in Subsection 7.4:
(A) PECO's failure, except for reductions requested by DPL pursuant to
Section 10.3 or reductions permitted pursuant to Section 2.3, to deliver in the
amounts specified in Section 2.2.
(B) PECO's dissolution or liquidation.
(C) PECO's general assignment of this AGREEMENT or any of its rights
under it for the benefit of creditors without obtaining DPL's prior written
consent, except as contemplated pursuant to Section 19.1.
(D) The filing of a case in bankruptcy or any proceeding under any
other insolvency law against PECO or its parent as debtor, or any other
affiliate as debtor that could materially impact PECO's ability to perform,
provided, however, that PECO shall be given sixty (60) days after such filing in
which to begin actively contesting such filing prior to this provision
constituting a Default. So long as PECO continues actively contesting such
filing, the above events shall not constitute a Default.
(E) PECO's abandonment of operation of all or substantially all of the
PECO SYSTEM for any reason prior to the termination of this AGREEMENT.
(F) PECO's failure to comply with or to operate the PECO SYSTEM in
conformity with any material provision of this AGREEMENT.
(G) A BREACH (as defined in Section 1.2) by PECO.
7.3 Default of DPL. The following shall constitute Defaults of DPL
unless cured within the time frame provided for in Section 7.4:
(A) DPL's failure to make payments under this AGREEMENT.
(B) DPL's dissolution or liquidation.
(C) DPL's general assignment of this AGREEMENT or any of its rights
under it for the benefit of creditors without obtaining PECO's prior written
consent, except as contemplated under Section 19.1.
(D) The filing of a case in bankruptcy or any proceeding under any
other insolvency law against DPL or its parent as debtor, or any other affiliate
as debtor that could materially impact DPL's ability to perform, provided,
however, that DPL shall be given sixty (60) days after such filing by a third
party in which to begin actively contesting such filing prior to this provision
constituting a Default. So long as DPL continues actively contesting such
filing, the above events shall not constitute a Default.
(E) DPL's abandonment of operation of all or substantially all of
either the DPL SYSTEM or the COPCO SYSTEM for any reason prior to termination of
this AGREEMENT; provided, however, that a transfer by DPL of all or
substantially all of either the DPL SYSTEM or the COPCO SYSTEM to a party that
assumes DPL's obligations shall not constitute an "abandonment of operation"
within the meaning of this Section.
(F) DPL's failure to comply with or to operate the DPL SYSTEM or COPCO
SYSTEM in conformity with any material provision of this AGREEMENT.
(G) A BREACH (as defined in Section 1.2) by DPL.
7.4 Cure. Any event described in Sections 7.2 and 7.3 shall not
constitute a BREACH or Default if either PARTY cures such BREACH or Default
within thirty (30) days of written notice of the BREACH or Default from the
other PARTY, provided however, that if after diligently pursuing such cure the
PARTY attempting cure is unable to implement it within such thirty (30) days,
then such event shall not constitute a BREACH or Default so long as the PARTY
attempting cure diligently and continuously pursues such cure until it is fully
implemented, provided that such cure is fully implemented no later than twelve
(12) months after the initial written notice.
7.5 Termination by DPL or PECO. In addition to any other remedy
available to it, upon 10 days written notice, PECO or DPL may terminate this
AGREEMENT if any one or more of the Defaults described in Section 7.2 or 7.3
hereof occur and the PARTIES do not cure such Default as provided in Section
7.4.
7.6 Consequential Damages. Neither PARTY shall be responsible to the
other PARTY for incidental, special or consequential damages (including punitive
damages or loss of profits) arising out of a BREACH or Default under this
AGREEMENT.
ARTICLE VIII
BILLING
8.1 Manner of Payment. All payments shall be made monthly, as described
in this Section 8.1:
(A) PECO shall prepare a statement of net charges incurred for each
calendar month and provide the statement to DPL by the sixth working day of the
following month.
(B) Any amounts due PECO or DPL, as the case may be, shall be due and
payable by wire transfer in immediately available funds on the first banking day
following the fourteenth day of the month in which the billing statement was
rendered. Interest on unpaid amounts shall accrue daily from the due date of
such unpaid amount until the date paid at a rate equal to 130 percent of the
then-current prime interest rate of Chase Manhattan Bank, N.A. or the maximum
rate permitted by law, whichever is less.
(C) Both DPL and PECO may, subject to acting in good faith, dispute
bills and place the disputed amount in an escrow account until the disputes are
resolved.
8.2 Records. To facilitate payment and verification, PECO and DPL shall
keep all books and records necessary for billing and payment in accordance with
the provisions of Article XIII of this AGREEMENT and grant the other PARTY
reasonable access to those records.
ARTICLE IX
INTERCONNECTION
9.1 Interconnection. The INTERCONNECTION POINT for deliveries of energy
under this AGREEMENT shall be the DELAWARE TIES and the MARYLAND TIES unless
agreed otherwise by the PARTIES from time to time. Of the total energy delivered
by PECO to DPL in any hour, a portion thereof equal to the load on the COPCO
SYSTEM in that same hour shall be delivered by PECO to the MARYLAND TIES and the
remainder shall be delivered to the DELAWARE TIES, unless otherwise agreed by
the PARTIES.
9.2 Transmission by Others. DPL shall be obligated to pay any and all
required transmission service and other related charges, either direct or
indirect, incurred on systems of others due to delivery of capacity or
associated energy from the PECO SYSTEM to the DPL or COPCO system under this
AGREEMENT, and shall obtain any transmission service or use agreements required
from others for the transmission of capacity or associated energy to be sold by
PECO to DPL under this AGREEMENT for the term of this AGREEMENT. The terms and
provisions of any such transmission service or use agreement that affects PECO
shall be in a form acceptable to PECO.
ARTICLE X
OPERATION
10.1 General. PECO and DPL shall each operate, maintain, and repair
their respective systems in accordance with STANDARD UTILITY PRACTICE and PJM
practice and in any event with at least the care and skill a reasonable, prudent
person in similar circumstances would employ.
10.2 Establishment of Operating Procedures. PECO and DPL shall mutually
develop written operating procedures. Topics covered by such operating
procedures shall include, but not be limited to, methods of day-to-day
communications, key personnel lists for applicable DPL and PECO operating
centers, criteria for scheduling energy deliveries as contemplated in Section
10.3, correction of clerical errors, and procedures for reflecting energy
transactions hereunder in the interchange records of the PARTIES and of PJM.
10.3 Scheduling. By 1:00 p.m. of Thursday of each week, DPL shall
provide PECO with hourly energy delivery requirements, expressed in MWH for each
hour, for the following week. DPL shall have the right to revise said hourly
energy delivery on a daily basis by providing notice by 1:00 p.m. prior to the
day that said change shall take effect.
10.4 Capacity Credit. For purposes of determining each PARTY's
installed capacity pursuant to the PJM AGREEMENT, or any successor provision,
the amount of CONTRACT CAPACITY plus RESERVE CAPACITY purchased by DPL pursuant
to Article II shall be included in DPL's accounts and PECO's accounts shall be
correspondingly reduced. However, performance data for PECO's generating units
shall be retained in PECO's accounts.
ARTICLE XI
LICENSING
Each PARTY shall, at its own expense, maintain in effect all local,
state, and federal licenses, permits, and approvals necessary for its own system
for the term of this AGREEMENT and DPL shall do likewise for the COPCO SYSTEM
after the closing date of the ASSET TRANSACTION.
ARTICLE XII
REPRESENTATIONS AND WARRANTIES
12.1 PECO's Representations and Warranties. PECO represents and
warrants that:
(A) PECO is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and is qualified as
a foreign corporation in good standing in each other jurisdiction where the
failure so to qualify would have a material adverse effect upon the business or
financial condition of PECO; and PECO has all requisite corporate power and
authority to conduct its business, to own its properties, and to execute,
deliver, and perform its obligations under this AGREEMENT.
(B) PECO's execution, delivery and performance of this AGREEMENT has
been duly authorized by all necessary corporate action, and does not and will
not (1) require any consent or approval of PECO's Board of Directors or
shareholders other than those which have been obtained, (2) violate any
provisions of PECO's corporate charter, bylaws or other organic documents, any
material indenture, contract or agreement to which PECO is a party or by which
PECO or its properties may be bound, or any material law, rule, regulation,
order, writ, judgment, injunction, decree, determination, or award presently in
effect having applicability to this AGREEMENT, or (3) result in a breach or
constitute a default under PECO's corporate charter or bylaws, or other organic
documents or other material indentures, contracts, or agreements, and PECO is
not in default under its corporate charter or bylaws or other organic documents
or other material indentures, contracts or agreements.
(C) This AGREEMENT is a valid and binding obligation of PECO.
12.2 DPL's Representations and Warranties. DPL represents and warrants
that:
(A) DPL is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and the Commonwealth of
Virginia and is qualified as a foreign corporation in good standing in each
other jurisdiction where the failure so to qualify would have a material adverse
effect upon the business or financial condition of DPL; and DPL has all
requisite corporate power and authority to conduct its business, to own its
properties, and to execute, deliver, and perform its obligations under this
AGREEMENT.
(B) DPL's execution, delivery and performance of this AGREEMENT has
been duly authorized by all necessary corporate action, and does not and will
not (1) require any consent or approval of DPL's Board of Directors or
shareholders other than those which have been obtained, (2) violate any
provisions of DPL's corporate charter, bylaws or other organic documents, any
material indenture, contract or agreement to which DPL is a party or by which
DPL or its properties may be bound, or any material law, rule, regulation,
order, writ, judgment, injunction, decree, determination, or award presently in
effect having applicability to this AGREEMENT, or (3) result in a breach or
constitute a default under DPL's corporate charter or bylaws, or other organic
documents or other material indentures, contracts, or agreements, and DPL is not
in default under its corporate charter or bylaws or other organic documents or
other material indentures, contracts or agreements.
(C) This AGREEMENT is a valid and binding obligation of DPL.
ARTICLE XIII
RECORDS
13.1 General. PECO and DPL shall each keep complete and accurate
records and all other data required properly to administer this AGREEMENT,
including such records as may be required by state or federal regulatory
authorities and the PJM INTERCONNECTION in the form required by PJM.
13.2 Retention Period. All records kept pursuant to this Article XIII
shall be maintained for a minimum of five (5) years after the creation of the
record or data and for any additional length of time required by regulatory
agencies with jurisdiction over PECO or DPL.
13.3 Examination of Records. PECO and DPL may examine the billing and
operating records and data kept by the other relating to transactions under and
administration of this AGREEMENT upon request and during normal business hours
during the period the records are required to be maintained pursuant to Section
13.2.
ARTICLE XIV
INDEMNIFICATION
14.1 Responsibility. Neither PARTY shall be responsible to the other
PARTY in tort (including negligence and strict liability), contract or otherwise
for any loss, cost or damage of any kind which may result from or be caused by
interruptions in service under this AGREEMENT, except as specified elsewhere in
this AGREEMENT. Each PARTY shall be solely responsible for, and shall indemnify,
hold harmless and defend the other PARTY, and each and every of its officers,
agents, servants, employees, successors and assigns, from and against any and
all claims, demands, suits, actions, liabilities, losses, damages and judgments,
as well as against any fees, including counsel fees, costs, charges or expenses
which that PARTY, its officers, agents, servants, employees, successors and
assigns may incur in the defense of any such claims, suits, actions or similar
such demands, for any loss or damage to property or injury to or death of
persons (including the property or employees of the PARTY) occurring within the
territories in which that PARTY's electric generation and supply system is
located and in any manner directly or indirectly arising from, connected with,
or growing out of the activities, including negligence, willful misconduct, or
failure to comply with any applicable law, statute, ordinance, rule or
regulation, of that PARTY, its agents, servants, employees, contractors or
subcontractors under or connected with the AGREEMENT. A PARTY's obligation to
indemnify, hold harmless and defend, as described under this Section 14.1, shall
apply irrespective of whether the other PARTY is concurrently or jointly
negligent, actively or passively, but shall not apply if, and to the extent
that, such loss, damage or injury is caused solely by the negligence of the
other Party.
14.2 Worker's Compensation Responsibility. Each PARTY shall indemnify
and hold harmless the other PARTY, and each and every of its officers, agents,
servants, employees, successors and assigns, from any and all claims of the
other PARTY's employees arising from any worker's compensation laws.
14.3 Procedure. If a claim is asserted or action brought against an
indemnitee (PECO or DPL as applicable), and the indemnitee believes that it is
entitled to indemnification under this Article XIV, the indemnitee shall
promptly notify the indemnitor (the other PARTY) in writing of such claim or
action. Such notice shall be provided in sufficient time to enable the
indemnitor to assert and prosecute appropriate defenses to the claim or action.
If the indemnitee fails to give the indemnitor sufficiently prompt notice, the
indemnitor shall have no further obligation to indemnify the indemnitee pursuant
to this Article XIV. Upon receipt of such notice, the indemnitor shall make a
prompt determination of whether it believes it is required to indemnify the
indemnitee, and shall promptly notify the indemnitee, in writing, of its
determination. If the indemnitor determines that it is required to indemnify, it
shall assume the defense of the indemnitee, including the employment of counsel,
and shall thereafter pay all costs and expenses relative to the defense of the
claim or action. The indemnitee shall cooperate with the indemnitor in all
reasonable respects in this defense. The indemnitee shall also have the right,
at its own expense, to employ separate counsel in any such action and to
participate in the defense thereof. The indemnitor shall not be liable for any
settlement of any claim or action made without its consent. Conversely, before
settling any claim or action, the indemnitor shall demonstrate to the indemnitee
that the indemnitor has sufficient financial means, or has made adequate
arrangements, to make all settlement payments as and when due.
ARTICLE XV
FORCE MAJEURE
15.1 Force Majeure Defined. The term "Force Majeure" as used herein,
shall mean any cause or causes which wholly or partly prevent the performance of
obligations arising under this AGREEMENT and which are not reasonably within the
control of and are without the fault or negligence of the non-performing PARTY,
and shall include, without limitation, acts of God, acts of the public enemy,
blockades, insurrections, strikes, lockouts or other labor disputes, riots,
disorders, civil disturbances, fires, explosions, storms, lightning, wind,
perils of the sea, floods, landslides, washouts, acts of military authorities,
acts of courts, arrests or restraints.
15.2 Force Majeure Effect. Except as otherwise provided in this
AGREEMENT, if either PARTY because of Force Majeure is rendered wholly or partly
unable to perform any of its obligations hereunder, except for the obligation to
make payments of money, that PARTY shall be excused solely from whatever
performance is affected, and such failure to perform shall not constitute a
BREACH or an Event of Default under Section 7.2 or Section 7.3, above, provided
that:
(A) the non-performing PARTY, within two (2) days after the
non-performing PARTY has knowledge of the commencement of the Force Majeure,
gives the other PARTY written notice describing the particulars of the
occurrence, its expected duration, and continues to furnish timely regular
reports, with respect thereto during the period of Force Majeure;
(B) the suspension of performance is not of greater scope or longer
duration than is required by the Force Majeure;
(C) no obligations of either PARTY which arose before the occurrence
causing the suspension of performance are excused as a result of the occurrence;
and
(D) the non-performing PARTY uses its best efforts to remedy its
inability to perform.
15.3 Settlement of Labor Disputes. The obligations of this Article
shall not require the settlement of any strike, walkout, lockout or other labor
dispute on terms which, in the sole judgment of the PARTY involved in the
dispute, are contrary to that PARTY's interest. It is understood and agreed that
the settlement of strikes, walkouts, lockouts or other labor disputes shall be
entirely within the discretion of the PARTY experiencing such strike, walkout,
lockout or other labor dispute.
15.4 Termination Due to Force Majeure. In the event a Force Majeure
event excuses a PARTY from performing a material obligation under this AGREEMENT
for a period of one (1) year or greater, the other PARTY may terminate the
AGREEMENT.
ARTICLE XVI
CONTRACT ADMINISTRATION
16.1 Company Representatives. DPL and PECO will both appoint a Company
Representative, who is duly authorized to act on behalf of the PARTY that
appoints him, for the purpose of administering this AGREEMENT, with whom the
other PARTY may consult at all reasonable times and whose instructions,
requests, and decisions shall be binding on the appointing PARTY as to all
matters pertaining to the administration of this AGREEMENT. The Company
Representatives may not alter or amend this AGREEMENT.
16.2 Notices. All notices not explicitly permitted to be in a form
other than writing shall be in writing and shall be given by commercial courier
service, registered, certified, or first class mail, telex, or telecopy at the
addresses listed below. PECO and DPL may, by written notice to the other, change
the Company Representative, the address to which notices and communications are
to be sent, the form of notice, or its method of delivery.
Notices to PECO shall be sent to:
PECO Energy Company
Attention: Director, Interconnection Arrangements
2301 Market Street
Philadelphia, PA 19101
Phone: 215/841-4236
Fax: 215/841-4234
Notices to DPL shall be sent to:
Delmarva Power & Light Company
Attention: James R. Wittine
800 King Street
Box 231
Wilmington, DE 19899
Phone: 302/454-4540
Fax: 302/454-4161
16.3 Dispute Resolution. PECO and DPL shall inform one another promptly
following the occurrence or discovery of any item or event which might
reasonably be expected to result in a dispute.
(A) The Company Representatives shall attempt to resolve the matters so
identified. Should such a matter not be disposed of to the claimant's
satisfaction, the claimant may deliver a written notice of claim with supporting
documentation to the responding PARTY's Company Representative. PECO and DPL
will then each appoint a senior official, not the Company Representative, with
expertise or experience in the area in which the claim arises, to investigate
and evaluate the claim.
(B) Any matter arising under this AGREEMENT which is in dispute and for
which resolution has not been reached under the procedures set forth in Section
16.3(A) shall be submitted to mediation, which shall be non-binding upon the
PARTIES. The PARTIES agree to pay the cost for mediation as directed by the
mediator. A PARTY with a claim under this AGREEMENT may refer the claim to
mediation at any time after thirty (30) days after delivering the written notice
to the Company Representative as required in Section 16.3(A).
(C) Nothing in this Section 16.3 shall limit a PARTY from seeking
redress of any dispute before FERC, the courts, or any appropriate governmental
authority.
ARTICLE XVII
TAXES
Each PARTY shall pay or cause to be paid all present or future federal,
state, municipal or other lawful taxes levied upon them and applicable by reason
of the sale and purchase of energy and capacity by the PARTIES under this
AGREEMENT. In the event that, subsequent to June 1, 1994, any governmental law,
regulation, order or action imposes any new or increased tax, fee or cost that
increases PECO's cost of supplying capacity or associated energy under this
AGREEMENT, then PECO shall have the unilateral right to file with FERC to
recover from DPL such new or increased tax, fee, or cost.
ARTICLE XVIII
GOVERNING LAW
This AGREEMENT shall be interpreted, construed and governed by the laws
of the Commonwealth of Pennsylvania and the United States of America, without
reference to conflict of law provisions. PECO and DPL agree to bring all
litigation under or pertaining to this AGREEMENT before the courts of the
Commonwealth of Pennsylvania.
ARTICLE XIX
MISCELLANEOUS
19.1 Assignment. Neither PECO nor DPL may assign this AGREEMENT or any
portion of its rights hereunder without the prior written consent of the other
PARTY, except to parties acquiring all or substantially all of the utility
assets of PECO or DPL, or to affiliates of the PARTIES.
19.2 Entirety. This AGREEMENT is intended by PECO and DPL as the final
expression of their agreement for the purchase and sale of energy and capacity.
All prior written or oral understandings, offers or other communications of
every kind pertaining to the sale of energy and capacity under this AGREEMENT to
DPL by PECO are superseded.
19.3 Amendments. This AGREEMENT can be amended only in writing and with
the same formality as the AGREEMENT.
19.4 No Waiver. Failure of either PARTY to insist in one or more
instances upon strict performance of any provisions of this AGREEMENT, or to
take advantage of any of its rights under it, shall not be construed as a waiver
of any such provisions or the relinquishment of any such right or any other
right under this AGREEMENT, which shall remain in full force and effect.
19.5 Form of Business Relationship. This AGREEMENT shall not be
interpreted or construed to create an association, joint venture, or partnership
between PECO and DPL or to impose any partnership obligation or liability upon
either PARTY. PECO and DPL shall not have any right, power or authority to enter
into an agreement or undertaking for, or act on behalf of, or to act as or be an
agent or representative of, or to otherwise bind, the other PARTY.
19.6 Independent Contractor. The relationship between DPL and PECO
shall be that of contracting party to independent contractor. Accordingly,
subject to the specific terms of this AGREEMENT, DPL shall have no general right
to prescribe the means by which PECO shall meet its obligations under this
AGREEMENT.
19.7 Employees. DPL and PECO shall each be solely liable for the
payment of all wages, taxes, and other costs related to the employment of
persons to perform under this AGREEMENT, including all federal, state, and local
income, social security, payroll and employment taxes and statutorily-mandated
workers' compensation coverage. Under this AGREEMENT, none of the persons
employed by PECO shall be considered employees of DPL and none of the persons
employed by DPL shall be considered employees of PECO for any purpose; nor shall
DPL or PECO represent to any person that he or she is or shall become an
employee of the other PARTY.
19.8 Survival of Obligations. The cancellation, expiration or early
termination of this AGREEMENT shall not relieve PECO or DPL of those obligations
surviving such cancellation, expiration or termination, including, without
limitation, warranties, remedies, promises of indemnity, and obligations or
liabilities, known or unknown, that occur or arise prior to cancellation,
expiration, or termination.
19.9 Headings. The headings contained in this AGREEMENT are used solely
for convenience, do not constitute a part of the AGREEMENT, and should not be
used to aid in any manner in the interpretation of this AGREEMENT.
19.10 Fixed-Price Agreement. Except for those changes allowed under
Article XVII, the terms, conditions, prices and formulas set forth in this
AGREEMENT shall remain in effect for the term of the AGREEMENT and shall not be
subject to change by application or complaint to the FERC or any successor
agency pursuant to the Federal Power Act or any successor act, or by application
or complaint to any court or state regulatory agency, without the prior written
agreement of PECO and DPL. Neither PARTY shall seek relief from the provisions
of the AGREEMENT from the FERC or any state regulatory authority without the
prior written consent of the other PARTY.
IN WITNESS WHEREOF, the PARTIES have caused this AGREEMENT to be
executed as of the day and year first above written.
PECO ENERGY COMPANY DELMARVA POWER & LIGHT COMPANY
By: /s/ Gregory A. Cucchi By: /s/ T.S. Shaw
Title: Vice President Title: Sr. Vice President
Witness: /s/ Todd D. Cutler Witness: /s/ Arturo F. Agra
Title: Assistant Secretary Title: Manager of Finance
<PAGE>
Schedule 1
<TABLE>
<CAPTION>
Non-Fuel
Contract Reserve Capacity Energy
Capacity Capacity Rate Rate
Time Interval MW MW $/KW-Mo $/MWH
--------------------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
2/1/96-5/31/97 174 31 11.34 8.00
6/1/97-5/31/98 180 32 11.34 8.28
6/1/98-5/31/99 184 33 11.34 8.57
6/1/99-5/31/00 189 34 12.90 8.87
6/1/00-5/31/01 194 35 12.90 9.18
6/1/01-5/31/02 199 36 12.90 9.50
6/1/02-5/31/03 204 37 12.90 9.83
6/1/03-5/31/04 209 38 12.90 10.18
6/1/04-5/31/05 215 38 12.90 10.53
6/1/05-5/31/06 220 39 12.90 10.90
</TABLE>
The amount of CONTRACT CAPACITY and RESERVE CAPACITY sold by PECO and
purchased by DPL pursuant to Section 2.2(A) during any Time Interval shall be
the amount of Contract Capacity and Reserve Capacity set forth in the above
table, subject to adjustments as follows:
(i) PECO shall have the right at its sole discretion, upon 30 months prior
notice, to increase the amount of CONTRACT CAPACITY by up to 17 MW (20
MW including RESERVE CAPACITY) commencing on June 1, 1998 and
remaining in effect for the remainder of the contract, and
(ii) PECO, from time to time, shall have the right at its sole discretion,
upon 30 months prior notice, to decrease the amount of CONTRACT
CAPACITY by up to a total of 42 MW (50 MW including RESERVE CAPACITY)
commencing on June 1, 1998 and remaining in effect for the remainder
of the contract. PECO shall not have any right to increase the
CONTRACT CAPACITY and RESERVE CAPACITY following any reduction, and
(iii) Should PECO elect adjustment (i), PECO, from time to time, shall then
have the right at its sole discretion, upon 30 months prior notice, to
decrease the amount of CONTRACT CAPACITY by up to an additional total
of 17 MW (20 MW including RESERVE CAPACITY) commencing on June 1, 1999
and remaining in effect for the remainder of the contract. PECO shall
not have any right to increase the CONTRACT CAPACITY and RESERVE
CAPACITY following any reduction, and
(iv) DPL shall have the right at its sole discretion to decrease the amount
of CONTRACT CAPACITY and RESERVE CAPACITY to the extent of any
equivalent amount of energy sales made by PECO to the facilities of
any retail customer of DPL located within the territory currently
served by COPCO at the time of such sales; provided, however, that DPL
may not so reduce its purchases to the extent that the actual peak
demand in the territory currently served by COPCO exceeds the CONTRACT
CAPACITY amount and RESERVE CAPACITY set forth in the above table.
The amount of RESERVE CAPACITY sold by PECO and purchased by DPL
pursuant to Section 2.2 (A) during any Time Interval shall be the amount of
RESERVE CAPACITY set forth in the above table, provided that if adjustment is
made to the CONTRACT CAPACITY pursuant to the foregoing paragraph, the RESERVE
CAPACITY shall simultaneously be adjusted by an amount equal to 18% of the
adjustment to the CONTRACT CAPACITY.
<PAGE>
Schedule 2
THE ENERGY CHARGE RATE shall be $18.60 per MWH of energy delivered,
provided that (a) the rate will be increased or decreased by an amount (ADJ1)
which will be determined each month according to the following formula:
ADJ1 = Nm - Nb
where:
Nm = The Non-fuel Energy Rate specified in Schedule 1
Nb = $8.00 per MWH
and (b) the rate will be increased or decreased by an amount (ADJ2) which will
be determined each month according to the formula stated below. The ADJ2 will be
estimated for the current month and the current bill will include the estimated
fuel adjustment amount. As soon (usually the next succeeding month) as actual
cost and sales figures are available, the ADJ2 will be recalculated and any
resulting difference from the estimated fuel adjustment amount will be applied
to a subsequent bill.
ADJ2 = (Fm/Sm - Fb/Sb) x (1-Ls)/(1-Lw)
where:
Fm = The cost during the current month of:
(a) Fossil and nuclear fuel consumed in PECO's own plants
and PECO's share of fossil and nuclear fuel consumed in
jointly owned or leased plants, the fuel costs of
precommercial operation, and the cost of emission
allowances; plus
(b) The actual identifiable fossil and nuclear fuel costs
associated with energy purchased for reasons other than
identified in (c) below, plus
(c) The total cost of the purchase of economic power, as
defined below; if PECO's reserve capacity is adequate
independent of all other purchases where non-fuel charges
are included; plus
(d) Energy charges for any purchase if the total amount of
energy charges incurred for the purchase is less than
PECO's total avoided variable cost; less
(e) The cost of fossil and nuclear fuel recovered through
sales for resale resulting from economic dispatch which
were previously credited to Account 555 and which are now
credited to Account 447 pursuant to instructions set forth
in the FERC Accounting Release AR-14, issued November 25,
1991.
Sm = Total reported retail and wholesale electric sales
excluding those sales resulting from economic dispatch
previously credited to net energy interchanged and now
treated as sales for resale pursuant to instructions set
forth in FERC Accounting Release AR-14 issued November 25,
1991.
Fb/Sb = Base cost = $10.60 per MWH
Ls = The ratio of the total system losses to the total system
output over a twelve month period.
Lw = The ratio of the losses at the wholesale delivery level
to total system output over a twelve month period.
Cost of fossil fuel includes only those items defined in
Account 151 of the Uniform System of Accounts for Electric Utilities prescribed
by the FERC.
Cost of nuclear fuel includes only those items defined in
Account 518 of the Uniform System of Accounts for Electric Utilities, except
those items in Account 518 which contain any expense for fossil fuel which has
already been included in the cost of fossil fuel. In addition, changes to the
cost of nuclear fuel for changes in estimated net salvage of uranium, plutonium,
and other byproducts contained in Account 157 are limited to those changes
allowed to pass through PECO's Pennsylvania retail energy adjustment clause.
Economic power is power or energy purchased over a period of
twelve months or less where the total cost of the purchase is less than PECO's
total avoided variable cost. The total cost of the purchase includes all charges
incurred in buying economic power and having it delivered. Economic power does
not include reliability purchases. The total cost includes but is not limited to
capacity or reservation charges, energy charges, adders and any transmission or
wheeling charges associated with the purchase.
Cost of emission allowances is the amount charged to Account
509 for the cost of allowances used in conjunction with corresponding amounts of
sulfur dioxide emitted. Also, gains and losses from the disposition of those
allowances associated with utility operations and recorded in Accounts 411.8 and
411.9, respectively.
Reliability purchase is power which PECO purchases because it
forecasts that it will be deficient in meeting its installed capacity obligation
determined pursuant to the PJM Agreement and which is accorded installed
capacity credit for accounting under the PJM Agreement. Reliability purchases
are not made to cover operating or spinning reserve requirements since those
obligations are met on a pool basis through PJM's economic dispatch. Decisions
to make reliability purchases and the corresponding capacity credit received
will be documented in PECO's installed capacity accounting records.
EXHIBIT 12-1
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
RATIOS OF EARNINGS TO FIXED CHARGES
($000)
12 MONTHS
ENDED
12/31/94
----------
NET INCOME $426,713
ADD BACK:
- INCOME TAXES:
OPERATING INCOME 234,033
NON-OPERATING INCOME 15,291
----------
NET TAXES 249,324
- FIXED CHARGES:
INTEREST APPLICABLE TO DEBT 400,972
ANNUAL RENTALS 6,340
----------
TOTAL FIXED CHARGES 407,312
==========
ADJUSTED EARNINGS INCLUDING AFUDC $1,083,349
==========
RATIO OF EARNINGS
TO FIXED CHARGES 2.66
==========
EXHIBIT 12-2
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED DIVIDENDS
($000)
12 MONTHS
ENDED
12/31/94
-----------
NET INCOME $426,713
ADD BACK:
- INCOME TAXES:
OPERATING INCOME 234,033
NON-OPERATING INCOME 15,291
-----------
NET TAXES 249,324
- FIXED CHARGES:
TOTAL INTEREST 400,972
ANNUAL RENTALS 6,340
-----------
TOTAL FIXED CHARGES 407,312
- PREFERRED DIVIDENDS:
DIVIDENDS ON PREFERRED STOCK 37,298
ADJUSTMENT TO PREFERRED DIVIDENDS* 21,793
-----------
59,091
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS $466,403
===========
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGE $1,083,349
===========
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED DIVIDENDS 2.32
===========
* ADDITIONAL CHARGE EQUIVALENT TO EARNINGS REQUIRED
TO ADJUST DIVIDENDS ON PREFERRED STOCK TO A PRE-TAX BASIS
<PAGE>
13
Management's Discussion and Analysis of Financial Condition and Results of
Operations
EARNINGS AND DIVIDENDS
1994 Compared to 1993
Earnings per common share in 1994 were $1.76 compared to $2.45 in 1993. The
decrease in earnings was primarily due to the one-time charge of $0.66 per share
associated with the Com pany's Voluntary Retirement Incentive Program (VRIP) and
Voluntary Separation Incentive Program (VSIP). Of the estimated 2,135 employees
eligible for VRIP, 1,474 employees elected to accept early retirement. An
additional 1,008 em ploy ees elected to separate under VSIP. These programs will
reduce the Company's work force by approximately 25%. Also contributing to the
decrease in earnings were other strategic and non-recurring operating and
maintenance charges which decreased 1994 earnings by $0.13 per share. These
decreases were partially offset by savings from the Com pany's ongoing debt and
preferred stock refinancing and re demp tion program, which increased earnings
by $0.14 per share.
The Company increased its annual common stock dividend by 7% to $1.62 per
share, effective with the dividend paid in December 1994.
Operating Revenues
Increases/(decreases) in electric sales and operating revenues for 1994 vs 1993
by classes of customers are set forth below:
Electric Sales Electric Revenues
(millions of kWh) (millions of $)
Residential 160 $15
Small Commercial and
Industrial 335 28
Large Commercial and
Industrial (88) (21)
Other 20 (25)
-- ---
Service Territory 427 (3)
Interchange Sales 311 9
Sales to Other Utilities 1,369 13
----- --
Total 2,107 $19
===== ===
Electric revenues increased $19 million in 1994 compared to 1993 primarily due
to increased sales to other utilities and increased interchange sales. These
increases were partially offset by lower revenue margins obtained on these
sales.
Effective April 7, 1994, the Energy Cost Adjustment (ECA) was changed from
a credit value of 7.600 mills per kilowatt hour (kWh) to a credit value of 5.627
mills per kWh, which resulted in an increase in annual revenue of $63 million.
Gas revenues increased $33 million in 1994 compared to 1993 primarily due
to higher fuel-clause revenues.
Fuel and Energy Interchange Expense
Fuel and energy interchange expenses increased $44 million in 1994 compared to
1993 primarily due to increased electric output associated with interchange
sales and increased sales to other utilities. A portion of this increase is
being deferred pending regulatory action. The increase was also attributable to
an increase in gas fuel costs.
Other Operating and Maintenance Expenses
Other operating and maintenance expenses increased $304 million in 1994 compared
to 1993 primarily due to a one-time, pre-tax charge of $254 million in the third
quarter of 1994 for VRIP and VSIP. In addition, other operating and maintenance
expenses increased due to higher environmental, customer and employee-related
charges, and other stra tegic and non-recurring operating and maintenance
charges. These increases were partially offset by lower generating station
charges resulting from fewer and shorter refueling and maintenance outages.
Depreciation Expense
Depreciation expense increased in 1994 compared to 1993 due to additions to
plant in service.
Allowance for Funds Used During Construction
Allowance for Funds Used During Construction (AFUDC) decreased in 1994 compared
to 1993 primarily due to a decrease in the 1994 AFUDC rate, partially offset by
an increase in Construction Work in Progress.
Income Taxes
Income taxes charged to operations decreased in 1994 compared to 1993 primarily
due to the charge for VRIP and VSIP and lower operating income. These de creases
were partially offset by lower interest expense allocated to operations.
Other Taxes
Other taxes increased in 1994 compared to 1993 primarily due to an increase in
the real estate tax base and increased Pennsylvania gross receipts tax resulting
from higher operating revenues.
Total Interest Charges
Total interest charges decreased in 1994 compared to 1993 primarily due to the
Company's ongoing program to refinance and redeem higher-cost, long-term debt.
Preferred Stock Dividends
Preferred stock dividends decreased in 1994 compared to 1993 primarily due to
the reduced number of preferred shares outstanding and the refinancing of
higher-cost preferred stock.
1993 Compared to 1992
Earnings per common share in 1993 were $2.45 compared to $1.90 in 1992. The
increase in earnings was primarily due to the settlement of the litigation in
connection with the 1987 shutdown of the Peach Bottom Atomic Power Station
(Peach Bottom), which reduced 1992 earnings by $0.27 per share; more favorable
weather in 1993, which increased earnings by $0.26 per share; and the Company's
ongoing debt and preferred stock refinancing and redemption program, which
increased earnings by $0.18 per share. These
<PAGE>
14
improvements were partially offset by non-recurring federal income tax
settlements, which increased 1992 earnings by $0.10 per share, and the higher
1993 federal income tax rate, which decreased earnings by $0.04 per share.
Operating Revenues
Increases/(decreases) in electric sales and operating revenues for 1993 vs 1992
by classes of customers are set forth below:
Electric Sales Electric Revenues
(millions of kWh) (millions of $)
Residential 763 $50
Small Commercial and
Industrial 406 9
Large Commercial and
Industrial 165 (59)
Other (191) (7)
---- --
Service Territory 1,143 (7)
Interchange Sales (774) (18)
Sales to Other Utilities 1,971 33
----- --
Total 2,340 $8
===== ==
Electric revenues increased $8 million in 1993 compared to 1992 primarily as a
result of higher residential sales due to favorable weather conditions and
higher sales to other utilities, partially offset by the pass-through of lower
fuel costs to customers and lower revenues from large commercial and industrial
customers.
Gas revenues increased $17 million in 1993 compared to 1992 primarily as a
result of higher interruptible sales resulting from favorable market conditions
and an increase in the use of gas at the Company's electric generating stations.
Fuel and Energy Interchange Expense
Fuel and energy interchange costs decreased $50 million in 1993 compared to 1992
primarily due to reduced higher-cost interchange purchases resulting from
increased nuclear generation and lower fuel costs. Nuclear generation utilizes
the Company's lowest-cost fuel. These decreases were partially offset by
increased output.
Other Operating and Maintenance Expenses
Other operating and maintenance expenses decreased $44 million in 1993 compared
to 1992 primarily due to lower charges for uncollectible accounts, lower
administrative and general expenses primarily as a result of a reduction in the
number of employees and the 1992 charge for the Nuclear Group Voluntary Early
Retirement Program and Voluntary Separation Package. These decreases were
partially offset by increases in other operating and maintenance charges related
to the Company's generating units.
Depreciation Expense
Depreciation expense increased in 1993 compared to 1992 due to additions to
plant in service.
Allowance for Funds Used During Construction
AFUDC increased in 1993 compared to 1992 primarily due to an increase in
Construction Work in Progress, partially offset by a decrease in the 1993 AFUDC
rate.
Income Taxes
Income taxes charged to operations and to other income increased in 1993
compared to 1992 due to the cost associated with the 1992 settlement of the
Peach Bottom co-owners' litigation, higher pre-tax income, lower interest
expense, the reduction in 1992 income taxes as a result of the settlement of the
Company's 1984-1986 federal income tax returns and the change in the federal
income tax rate from 34% to 35% in 1993. These increases were partially offset
by the first quarter 1993 change in estimate to ratably decrease deferred
federal income taxes in accordance with the tax-rate decrease mandated by the
Tax Reform Act of 1986.
Other Taxes
Other taxes increased in 1993 compared to 1992 primarily due to a settlement of
the 1990 Pennsylvania Capital Stock Tax, an adjustment of the 1991 Pennsylvania
Capital Stock Tax in 1992, and an increase in the real estate tax base.
Total Interest Charges
Total interest charges decreased in 1993 compared to 1992 primarily due to the
Company's ongoing program to refinance and redeem higher-cost, long-term debt.
Preferred Stock Dividends
Preferred stock dividends decreased in 1993 compared to 1992 primarily due to
the reduced number of preferred shares outstanding and the refinancing of
higher-cost preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for capital expenditures for
its construction program and for debt service. Capital resources available to
meet these requirements and dividend payments are funded from cash provided by
utility operations and, to the extent necessary, external financing.
The Company meets its short-term liquidity requirements primarily through a
$150 million commercial paper program and bank lines of credit, which were
$351.2 million at December 31, 1994. The Company did not have any commercial
paper outstanding at December 31, 1994, and had $11.5 million outstanding under
existing bank lines of credit. The Company believes these sources of short-term
liquidity are adequate.
<PAGE>
15
Construction program expenditures for 1994 were $557 million and are
estimated to be $495 million in 1995 and $1.4 billion for 1996 to 1998. Certain
facilities under construction and to be constructed may require permits and
licenses which the Company has no assurance will be granted.
The Company expects its level of capital investment in utility plant to
remain relatively stable since it has sufficient electric generating capacity to
meet the anticipated needs of its service territory well into the next decade.
Since 1990, the Company's internal sources of cash have exceeded its
capital requirements, which has improved the Company's financial condition.
Contributing to this improvement in internal sources of cash were revenues from
sales of capacity and energy to other utilities and the Company's ongoing
program to refinance and redeem higher-cost, long-term debt and preferred stock.
Net cash provided by operating activities for 1994 was $1.3 billion. For 1995
through 1998, the Company expects that internally generated cash will exceed its
capital requirements, allowing further reductions in the Company's debt.
During 1994, $366 million of long-term debt and monthly income preferred
securities were sold to replace debt and preferred stock carrying higher rates
of interest and dividends. Also during 1994, the Company utilized internally
generated cash to repay $253 million of debt and to redeem $18 million of
preferred stock. These transactions resulted in a reduction of approximately $26
million in annualized interest and $8 million in annualized preferred stock
dividends. At December 31, 1994, the Company's embedded cost of debt was 7.2%
and 16.7% of the Company's long-term debt had a floating rate. The ratios under
the Company's mortgage indenture and Articles of Incorporation at December 31,
1994 were 3.48 and 2.05 times, respectively, compared with minimum issuance
requirements of 2.00 and 1.50 times. The ratios, although significantly above
minimum requirements, are adversely affected through the third quarter of 1995
by the one-time charge incurred in the third quarter of 1994 for VRIP and VSIP.
During 1994, the Company purchased more than 380,000 shares of the
Company's common stock through a voluntary odd-lot buy-back program which
entitled shareholders with fewer than 100 shares, or odd lots, to sell their
entire holdings of PECO Energy common stock without paying any brokerage
commission or fees. Dividend Reinvest ment and Stock Purchase Plan requirements
were satisfied by the reissuance of the odd-lot shares and purchase of shares of
common stock on the open market. Depending on the Company's specific
requirements, the Company will decide whether to issue shares or purchase shares
on the open market in the future.
The Company's capital structure as of December 31, 1994 was common equity,
43.5%; preferred stock and monthly income preferred securities of a subsidiary
(which comprises 2.2% of the Company's total capitalization structure), 6.0%;
and long-term debt, 50.5%; compared to its capital structure as of December 31,
1993 of common equity, 42.6%; preferred stock, 6.1%; and long-term debt, 51.3%.
The Company anticipates that it will further reduce its debt.
OUTLOOK
The Company's financial condition and its future operating results are dependent
on a number of factors affecting the Company and the utility industry in
general. These factors include increased competition, the regulation and
operation of nuclear generating facilities, off-system sales, compliance with
environmental regulations, and regulatory and accounting changes.
Competition
The National Energy Policy Act of 1992 (Energy Act) encourages competition among
utilities and nonutility generators for sales of energy and capacity to
wholesale customers by allowing access to utility transmission facilities. The
Energy Act directs the Federal Energy Regulatory Commission (FERC) to set prices
for wheeling to allow utilities to recover all legitimate, verifiable and
economic costs of providing wheeling services, including the cost of expanding
their transmission facilities to accommodate required transmission access. The
Energy Act prohibits FERC from ordering wheeling for sales to retail customers.
This does not, however, prohibit state regulatory commissions from ordering
wheeling to retail customers within their jurisdiction. Currently a number of
states, including Pennsylvania, are assessing the issue of retail competition.
In May 1994, the Pennsylvania Public Utility Commission (PUC) instituted an
investigation into electric power competition issues. The PUC invited utilities,
independent power producers and other interested parties to respond to a number
of issues related to competition, including the impact of retail wheeling. In
November 1994, the Company filed its comments with the PUC. The Company
responded that access by retail customers to alternate electricity suppliers
(retail access) is not in the public interest and should not be implemented
unless there is a reasonable expectation that the total benefits created will
exceed the total cost of the changes.
The Company believes that retail access should not be adopted if it
represents a mere shifting of costs from one class of customers to another. The
Company believes that retail access does not currently provide a net benefit.
Regulatory changes permitting retail access may also create "stranded
investment," investment by a regulated utility in assets currently included in
rates that are not recoverable if its customers are served by another energy
supplier. Investments by the Company in assets which are not recoverable from
customers may have to be written off, which write-off could have a material
adverse effect on the Company's financial condition and results of operations.
The Company believes other alternatives are available for enhancing the current
regulatory system. The Company expressed its willingness to work with others to
explore potential enhancements, such as performance-based
<PAGE>
16
ratemaking, flexible pricing and the continued development of efficient
bulk-power markets. The PUC is currently expected to release the findings from
its investigation in the spring of 1995. The Company is not able to predict
whether retail access will be implemented and, if implemented, what impact it
would have on the Company's financial condition or results of operations.
The Company believes that through interruptible rates and long-term
contracts with cost-based rates that are available to most of its larger-volume
industrial customers, retail access would not adversely affect that portion of
its retail business. Because the Company is a high-cost producer due to its
capital investment in nuclear facilities, retail access could adversely affect
other segments of its retail business, particularly other large commercial and
industrial customers.
The wholesale electric utility industry, in particular power generation to
serve the needs of large users such as municipal customers and to provide for
off-system sales, has become increasingly competitive. Such competition has
permitted the Company to increase off-system sales but has reduced the Company's
margin for off-system sales. Companies that are able to provide energy at a
lower cost are likely to benefit from this competition. These factors will
continue to challenge the Company to maintain current revenue levels.
As part of the Company's commitment to cost reduction and stringent cost
control, in April 1994, the Company's Board of Directors approved a package of
financial incentives permitting eligible employees to participate in either VRIP
or VSIP. Of the estimated 2,135 employees eligible for VRIP, 1,474 employees
elected to accept early retirement. An additional 1,008 employees elected to
separate under VSIP. The retirements and separations of the 2,482 employees
accepting VRIP or VSIP are taking place in stages through December 31, 1995. The
Company expects VRIP and VSIP to provide savings in wages and benefits to the
Company of approximately $100 million annually.
In May 1994, the Company entered into an agreement to sell Conowingo Power
Company (COPCO), its wholly owned Maryland retail electric subsidiary, to
Delmarva Power and Light Company (Delmarva) for approximately $150 million. The
transaction also includes a ten-year contract for the Company to sell capacity
and energy to Delmarva. The sale is subject to state and federal regulatory
approvals. Recognition of the gain on the sale, which the Company expects to be
approximately $40 million after taxes, is contingent upon the completion of the
sale.
The Company has implemented its plan to reorganize the Company's operations
into five strategic business units to better enable it to meet the challenges of
a competitive environment. The Consumer Energy Services Group distributes energy
products and services to the Company's retail customers and consists primarily
of the operating divisions, marketing, sales, engineering and support services.
Bulk Power Enterprises is responsible for marketing and selling energy products
to wholesale customers inside and outside the Company's service territory. The
Power Generation Group is responsible for operating the Company's fossil-fuel
and hydroelectric generating units. The Nuclear Generation Group is responsible
for operating the Company's nuclear generating stations. The Gas Services Group
is responsible for managing the Company's gas operations. The Company is
currently planning to have each business unit eventually operate as an
individual profit center, separate from the other business units.
Regulation and Operation of Nuclear Generating Facilities
The Company's financial condition and future operating results are in part
dependent on the continued successful operation of its nuclear generating
facilities. The Company's nuclear generating facilities represent approximately
45% of its installed generating capacity. Because of the Company's substantial
investment in and reliance on its nuclear generating units, any changes in
regulations by the Nuclear Regulatory Commission (NRC) requiring additional
investments or resulting in increased operating costs of nuclear generating
units could adversely affect the Company.
During 1994, the Company-operated nuclear plants operated at an 89%
weighted average capacity factor and the Company-owned nuclear plants operated
at an 82% weighted average capacity factor and produced 60% of the Company's
output. Nuclear generation is the most cost-effective way for the Company to
meet customer needs and commitments for off-system sales. Continued operation of
the nuclear plants above 60% of capacity is necessary to avoid penalties under
the ECA. In addition, the terms of the 1991 settlement of the Limerick
Generating Station (Limerick) Unit No. 2 rate case afford the Company the
opportunity, through sales to other utilities and the efficient operation of
Limerick, to increase future earnings. See note 2 of Notes to Consolidated
Financial Statements for a description of the ECA and the terms of the Limerick
Unit No. 2 rate case settlement.
The Company would ultimately seek to recover through the ratemaking process
all capital costs and any increased operating costs, including those associated
with NRC regulation of the Company's nuclear generating stations and
environmental compliance and remediation, although such recovery is not assured.
The staff of the Securities and Exchange Commission has questioned the
electric utility industry accounting practices regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations in financial statements. The Financial Accounting Standards Board
(FASB) has agreed to review the accounting for removal costs, including
decommissioning (see note 3 of Notes to Consolidated Financial Statements). The
Company does not expect this review to have a material effect on the Company's
financial condition or results of operations.
<PAGE>
17
Off-System Sales
The Company has agreements with other utilities to sell its excess installed
generating capacity and/or associated energy. These agreements are primarily for
weekly purchases of energy. The Company expects to sell over $100 million of
capacity and/or energy through such agreements in 1995. Due to rerates, the
Company currently has 989 megawatts (MW) of excess installed generating capacity
and expects to have 1,201 MW of excess installed generating capacity by 1997.
The Company's future results of operations are dependent in part on its ability
to successfully market its excess generating capacity and/or associated energy.
In May 1994, the Company entered into a ten-year contract to sell capacity
and energy to Delmarva as part of the Company's agreement to sell COPCO to
Delmarva. Revenue received under this contract is expected to offset the revenue
lost as a result of the sale of COPCO. This contract is subject to state and
federal regulatory approvals and the sale of COPCO to Delmarva. The Company also
finalized an agreement to sell 140 MW of capacity and energy to Baltimore Gas
and Electric Company for a 25-year term beginning in 1997, subject to state and
federal regulatory approval. The Company's bid was one of 28 bids submitted, and
the sale is expected to generate approximately $45 million in revenue annually.
Compliance With Environmental Regulations
Under federal and state environmental laws, the Company is generally liable for
the costs of remediating environmental contamination of property now or formerly
owned by the Company or of property contaminated by hazardous substances
generated by the Company. The Company owns or leases a substantial number of
real estate parcels, including parcels on which its operations or the operations
of others may have resulted in contamination by substances which are considered
hazardous under environmental laws. The Company is currently involved in a
number of proceedings relating to sites where hazardous substances have been
deposited and may be subject to additional proceedings in the future.
An evaluation of Company sites for potential environmental clean-up
liability is ongoing, including approximately 20 sites where manufactured gas
plant activities may have resulted in site contamination. Past activities at
several sites have resulted in actual site contamination. The Company is
presently engaged in performing detailed evaluations at certain of these sites
to define the nature and extent of the con tamination, to determine the
necessity of remediation and to identify possible remediation alternatives.
As of December 31, 1994 and 1993, the Company had accrued $24 and $17
million, respectively, for environmental investigation and remediation costs
that currently can be reasonably estimated. The Company cannot currently predict
whether it will incur other significant liabilities for any additional
remediation costs at these or additional sites identified by the Company,
environmental agencies or others.
Regulatory Assets
At December 31, 1994, the Company had deferred on its balance sheet certain
regulatory assets for which current recovery has not yet been approved by the
PUC. These regulatory assets include $91 million of operating and maintenance
expenses, depreciation and accrued carrying charges on its investment in
Limerick Unit No. 2 and 50% of Limerick common facilities, deferred pursuant to
a Declaratory Order of the PUC, and $107 million for the effect on deferred
taxes of the change in the statutory federal income tax rate from 34% to 35% in
1993. See notes 2 and 13, respectively, of Notes to Consolidated Financial
Statements.
These and other regulatory assets are deferred pursuant to PUC action. Any
deferred costs that are not recovered through base rates would be charged
against income immediately. The Company has agreed not to seek a retail electric
base rate increase before April 1, 1999, except under specified circumstances
(see note 2 of Notes to Consolidated Financial Statements).
Other Factors Affecting the Company's Outlook
Although 1994 was essentially a weather-neutral year, annual and quarterly
operating results can be significantly affected by weather. An extremely hot or
cool summer can increase or decrease earnings for a year by as much as $0.20 per
share compared to a year which has normal weather.
Inflation affects the Company through increased operating costs and
increased capital costs for utility plant. During periods of high inflation, the
Company could be adversely affected if it is unable to offset increasing costs
with improved productivity. In addition, the replacement costs of the Company's
utility plant are significantly higher than the historical costs reflected in
the financial statements.
The Company's budgeted capital expenditures through 1997 include all costs
of compliance with Phase I of the Clean Air Act of 1990 (Clean Air Act),
including its share of the costs of scrubbers being installed at Conemaugh
Generating Station. As a result of its prior investments in scrubbers for
Eddystone and Cromby Generating Stations and its investment in nuclear
generating capacity, the Company believes that compliance with the Clean Air Act
will have significantly less impact on the Company than on other Pennsylvania
utilities which are more dependent on coal-fired generation.
In 1994, Standard & Poor's (S&P) rating agency revised its rating outlook
on the Company from "negative" to "stable." S&P revised the rating as a result
of the Company's material cost-cutting initiatives, plans for a more rapid debt
reduction, well-controlled construction spending, and prospects for additional
sales to other utilities.
For a discussion of other contingencies, see notes 2 and 3 of Notes to
Consolidated Financial Statements.
<PAGE>
18
Report of Independent Accountants
To the Shareholders and Board of Directors
PECO Energy Company:
We have audited the accompanying consolidated balance sheets of PECO Energy
Company and Subsidiary Companies as of December 31, 1994 and 1993, and the
related consolidated statements of income, cash flows, and changes in common
shareholders' equity and preferred stock for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PECO Energy
Company and Subsidiary Companies as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 4 of the consolidated financial statements, the
Company changed its methods of accounting for non-pension postretirement
employee benefits and income taxes in 1993.
COOPERS & LYBRAND LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 30, 1995
<PAGE>
19
Consolidated Statements of Income
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
<S> <C> <C> <C>
OPERATING REVENUES
Electric $3,624,797 $3,605,425 $3,597,141
Gas 415,835 382,704 365,328
------- ------- -------
TOTAL OPERATING REVENUES 4,040,632 3,988,129 3,962,469
========= ========= =========
OPERATING EXPENSES
Fuel and Energy Interchange 703,590 659,580 709,115
Other Operating 937,849 851,254 906,346
Early Retirement and Separation Programs 254,106 -- --
Maintenance 327,714 364,409 353,502
Depreciation 442,101 424,952 413,779
Income Taxes 234,033 354,391 264,483
Other Taxes 311,689 298,132 281,868
------- ------- -------
TOTAL OPERATING EXPENSES 3,211,082 2,952,718 2,929,093
--------- --------- ---------
OPERATING INCOME 829,550 1,035,411 1,033,376
======= ========= =========
OTHER INCOME AND DEDUCTIONS
Allowance for Other Funds Used During Construction 10,180 11,885 10,461
Settlement of Peach Bottom Litigation -- -- (103,078)
Income Taxes (15,291) (11,808) 40,160
Other, Net 23,121 11,980 3,392
------ ------ -----
TOTAL OTHER INCOME AND DEDUCTIONS 18,010 12,057 (49,065)
------ ------ -------
INCOME BEFORE INTEREST CHARGES 847,560 1,047,468 984,311
======= ========= =======
INTEREST CHARGES
Long-Term Debt 387,279 432,707 484,153
Dividends on Preferred Securities of Subsidiary 8,570 -- --
Short-Term Debt 36,987 36,002 31,419
------ ------ ------
TOTAL INTEREST CHARGES 432,836 468,709 515,572
Allowance for Borrowed Funds Used During Construction (11,989) (11,889) (10,202)
------- ------- -------
NET INTEREST CHARGES 420,847 456,820 505,370
------- ------- -------
Net Income 426,713 590,648 478,941
Preferred Stock Dividends 37,298 49,058 60,731
------ ------ ------
EARNINGS APPLICABLE TO COMMON STOCK $389,415 $541,590 $418,210
======== ======== ========
Average Shares of Common Stock Outstanding (THOUSANDS) 221,554 221,072 220,245
EARNINGS PER AVERAGE COMMON SHARE (DOLLARS) $1.76 $2.45 $1.90
===== ===== =====
DIVIDENDS PER COMMON SHARE (DOLLARS) $1.545 $1.43 $1.325
====== ===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
20
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) DECEMBER 31, 1994 1993
<S> <C> <C>
Assets
UTILITY PLANT, AT ORIGINAL COST
Electric $13,283,888 $13,102,088
Gas 895,946 843,205
Common 234,769 203,747
------- -------
14,414,603 14,149,040
Less Accumulated Provision for Depreciation 4,242,576 3,946,805
--------- ---------
10,172,027 10,202,235
Nuclear Fuel, Net 184,161 179,529
Construction Work in Progress 472,512 381,247
Leased Property, Net 174,565 194,702
------- -------
NET UTILITY PLANT 11,003,265 10,957,713
---------- ----------
CURRENT ASSETS
Cash and Temporary Cash Investments 46,970 46,923
Accounts Receivable, Net
Customers 96,987 122,581
Other 49,854 47,768
Inventories, at Average Cost
Fossil Fuel 72,732 67,040
Materials and Supplies 118,230 142,132
Deferred Income Taxes 12,002 30,185
Other 58,069 58,205
------ ------
TOTAL CURRENT ASSETS 454,844 514,834
------- -------
DEFERRED DEBITS AND OTHER ASSETS
Recoverable Deferred Income Taxes 2,138,079 2,297,368
Deferred Limerick Costs 413,885 433,605
Deferred Non-Pension Postretirement Benefit Costs 261,912 44,691
Investments 236,587 218,636
Loss on Reacquired Debt 320,879 343,004
Other 263,308 222,476
------- -------
TOTAL DEFERRED DEBITS AND OTHER ASSETS 3,634,650 3,559,780
--------- ---------
TOTAL $15,092,759 $15,032,327
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
21
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) December 31, 1994 1993
<S> <C> <C>
Capitalization and Liabilities
CAPITALIZATION
Common Shareholders' Equity
Common Stock $3,490,728 $3,488,477
Other Paid-In Capital 1,271 1,214
Retained Earnings 810,507 773,727
------- -------
4,302,506 4,263,418
Preferred and Preference Stock
Without Mandatory Redemption 277,472 422,472
With Mandatory Redemption 92,700 186,500
Minority Interest in Preferred Securities of Subsidiary 221,250 --
Long-Term Debt 4,785,631 4,884,343
--------- ---------
TOTAL CAPITALIZATION 9,679,559 9,756,733
--------- ---------
CURRENT LIABILITIES
Notes Payable, Bank 11,499 119,350
Long-Term Debt Due Within One Year 201,213 252,263
Capital Lease Obligations Due Within One Year 60,476 60,500
Accounts Payable 308,832 242,239
Taxes Accrued 87,185 24,939
Deferred Energy Costs 15,486 48,691
Interest Accrued 93,159 97,540
Dividends Payable 15,096 18,345
Other 85,649 90,710
------ ------
TOTAL CURRENT LIABILITIES 878,595 954,577
------- -------
DEFERRED CREDITS AND OTHER LIABILITIES
Capital Lease Obligations 114,089 134,202
Deferred Income Taxes 3,225,915 3,386,136
Unamortized Investment Tax Credits 374,100 386,162
Pension Obligation for Early Retirement Plans 238,250 135,286
Non-Pension Postretirement Benefits Obligation 354,458 51,781
Other 227,793 227,450
------- -------
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES 4,534,605 4,321,017
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 3)
TOTAL $15,092,759 $15,032,327
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
22
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $426,713 $590,648 $478,941
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 517,681 507,069 491,186
Deferred Income Taxes (23,306) 139,846 81,943
Early Retirement and Separation Programs 254,106 -- --
Unrecovered Phase-In Plan Revenue -- -- 142,267
Deferred Energy Costs (33,205) (24,308) 52,959
Amortization of Leased Property 61,900 58,400 54,600
Changes in Working Capital:
Accounts Receivable 23,508 31,102 82,151
Inventories 18,210 11,222 1,395
Accounts Payable 5,342 777 (47,403)
Other Current Assets and Liabilities 52,940 (34,694) (136,627)
Other Items Affecting Operations (9,175) (18,287) (28,569)
------ ------- -------
Net Cash Flows Provided by Operating Activities 1,294,714 1,261,775 1,172,843
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Plant (570,903) (568,076) (571,829)
Increase in Other Investments (17,951) (16,214) (32,769)
------- ------- -------
Net Cash Flows Used by Investing Activities (588,854) (584,290) (604,598)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Short-Term Debt (107,851) 8,850 110,500
Issuance of Common Stock 2,308 29,346 12,465
Issuance of Preferred Stock -- 142,700 140,000
Retirement of Preferred Stock (238,800) (187,330) (224,462)
Minority Interest in Preferred Securities of Subsidiary 221,250 -- --
Issuance of Long-Term Debt 245,100 1,994,765 1,369,540
Retirement of Long-Term Debt (397,763) (2,148,963) (1,504,877)
Loss on Reacquired Debt 22,125 (69,884) (85,380)
Dividends on Preferred and Common Stock (377,883) (366,081) (349,856)
Change in Dividends Payable (3,249) (1,114) (16,607)
Expenses of Issuing Long-Term Debt and Preferred Stock (9,150) (24,820) (11,660)
Capital Lease Payments (61,900) (58,400) (54,600)
------- ------- -------
Net Cash Flows from Financing Activities (705,813) (680,931) (614,937)
-------- -------- --------
Increase/(Decrease) in Cash and Cash Equivalents 47 (3,446) (46,692)
Cash and Cash Equivalents at beginning of period 46,923 50,369 97,061
------ ------ ------
Cash and Cash Equivalents at end of period $46,970 $46,923 $50,369
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
23
Consolidated Statements of Changes in Common Shareholders' Equity and Preferred
Stock
<TABLE>
<CAPTION>
Other
Common Stock Paid-In Retained Preferred Stock
(ALL AMOUNTS IN THOUSANDS) Shares Amount Capital Earnings Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 220,030 $3,446,666 $1,214 $444,399 7,381 $738,064
Net Income 478,941
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (58,021)
Common Stock ($1.325 per share) (291,835)
Expenses of Capital Stock Activity (11,660)
Issuance of Stock
Long-Term Incentive Plan 504 12,465
Issuances 1,400 140,000
Redemptions (2,245) (224,462)
------- --------- ----- ------- ----- -------
Balance, December 31, 1992 220,534 3,459,131 1,214 561,824 6,536 653,602
Net Income 590,648
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (49,919)
Common Stock ($1.43 per share) (316,162)
Expenses of Capital Stock Activity (5,625)
Issuance of Stock
Long-Term Incentive Plan 983 29,346 (7,039)
Issuances 1,427 142,700
Redemptions (1,873) (187,330)
------- --------- ----- ------- ----- -------
Balance, December 31, 1993 221,517 3,488,477 1,214 773,727 6,090 608,972
Net Income 426,713
Cash Dividends Declared
Preferred Stock
(at specified annual rates) (35,706)
Common Stock ($1.545 per share) (342,177)
Expenses of Capital Stock Activity (11,662)
Issuance of Stock
Long-Term Incentive Plan 92 2,251 (388)
Issuances 57
Redemptions (2,388) (238,800)
------- --------- ----- ------- ----- -------
Balance, December 31, 1994 221,609 $3,490,728 $1,271 $810,507 3,702 $370,172
======= ========== ====== ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
24
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
General
The consolidated financial statements of PECO Energy Company (Company) include
the accounts of its utility subsidiary companies, all of which are wholly owned.
Non utility subsidiaries are not material and are accounted for on the equity
method. Accounting policies are in accordance with those prescribed by the
regulatory authorities having jurisdiction, principally the Pennsylvania Public
Utility Commission (PUC) and the Federal Energy Regulatory Commission (FERC).
Revenues
Customers' meters are read and bills are prepared on a cycle basis. At the end
of each month, the Company accrues an estimate for the unbilled amount of energy
delivered to customers.
Pursuant to a phase-in plan approved by the PUC in its electric base rate
order dated April 19, 1990, the Company recorded revenue equal to the full
amount of the rate increase approved, based on kilowatthours rendered to
customers. On April 5, 1991, that plan was amended by the PUC as part of the
settlement of all appeals arising from the Limerick Generating Station
(Limerick) Unit No. 2 rate proceeding to permit recovery of the remaining
unrecovered revenue by December 31, 1992 (see note 2). As of December 31, 1994,
1993 and 1992, the Company had no unrecovered phase-in plan revenue.
Fuel and Energy Cost Adjustment Clauses
The Company's classes of service are subject to fuel adjustment clauses designed
to recover or refund the differences between actual costs of fuel, energy
interchange, and purchased power and gas, and the amounts of such costs included
in base rates. Differences between the amounts billed to customers and the
actual costs recoverable are deferred and recovered or refunded in future
periods by means of prospective adjustments to rates. Generally, such rates are
adjusted every twelve months. In addition to reconciling fuel costs and
revenues, the Company's Energy Cost Adjustment (ECA), established by the PUC,
incorporates a nuclear performance standard which allows for financial bonuses
or penalties depending upon whether the Company's system nuclear capacity factor
exceeds or falls below a specified range (see note 2).
Nuclear Fuel
Nuclear fuel is capitalized and charged to fuel expense on the unit of
production method. Estimated costs of nuclear fuel disposal are charged to fuel
expense as the related fuel is consumed. The Company's share of nuclear fuel at
Peach Bottom Atomic Power Station (Peach Bottom) and Salem Generating Station
(Salem) is accounted for as a capital lease. Nuclear fuel at Limerick is owned.
Depreciation and Decommissioning
The annual provision for depreciation is provided over the estimated service
lives of plant on the straight-line method. Annual depreciation provisions for
financial reporting purposes, expressed as a percent of average depreciable
utility plant in service, were approximately 2.77% in 1994 and 2.75% in 1993 and
1992.
The Company's share of the 1990 estimated costs for decommissioning nuclear
generating stations currently included in electric base rates is being charged
to operations over the expected service life of the related plant. The amounts
recovered from customers are deposited in trust accounts and invested for
funding of future costs and credited to accumulated depreciation (see note 3).
Income Taxes
In 1993, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," which requires an asset and liability
approach for financial accounting and reporting of income taxes. The effects of
the Alternative Minimum Tax (AMT) are normalized. Investment Tax Credit (ITC) is
deferred and amortized to income over the estimated useful lives of the related
utility plant. ITC related to plant in service, not included in rate base, is
accounted for on the flow-through method (see note 13).
Allowance for Funds Used During Construction (AFUDC)
AFUDC is the cost, during the period of construction, of debt and equity funds
used to finance construction projects. AFUDC is recorded as a charge to
Construction Work in Progress, and the credits are to Interest Charges for the
cost of borrowed funds and to Other Income and Deductions for the remainder as
the allowance for other funds. The rates used for capitalizing AFUDC, which
averaged 7.74% in 1994, 9.39% in 1993 and 10.61% in 1992, are computed under a
method prescribed by the regulatory authorities. AFUDC is not included in
regular taxable income and the depreciation of capitalized AFUDC is not tax
deductible.
Nuclear Outage Costs
Incremental nuclear maintenance and refueling outage costs are accrued over the
unit operating cycle. For each unit, an accrual for incremental nuclear
maintenance and refueling outage expense is estimated based upon the latest
planned outage schedule and estimated costs for the outage. Differences between
the accrued and actual expense for the outage are recorded when such differences
are known.
Capitalized Software Costs
Software projects which exceed $5 million are capitalized. At December 31, 1994
and 1993, capitalized software costs totaled $51 million and $56 million (net of
$10 million and $3 million accumulated amortization), respectively. Such
capitalized amounts are amortized ratably over the expected lives of the
projects when they become operational, not to exceed ten years.
<PAGE>
25
1. Significant Accounting Policies (CONTINUED)
Gains and Losses on Reacquired Debt
Gains and losses on reacquired debt are deferred and amortized to interest
expense over the stated life of the reacquired debt.
Reclassifications
Certain prior-year amounts have been reclassified for comparative purposes.
2. Rate Matters
Limerick Unit No. 2 Electric Rate Order
As part of the April 19, 1990 PUC order, the PUC approved recovery of $285
million of deferred Limerick costs representing carrying charges and
depreciation associated with 50% of Limerick common facilities. These costs are
included in base rates and are being recovered over the life of Limerick. The
PUC also approved recovery of $137 million of Limerick Unit No. 1 costs which
had previously been deferred pursuant to a Declaratory Order dated September 28,
1984. These costs are being recovered over a ten-year period without a return on
investment.
On April 5, 1991, the PUC approved the settlement of all appeals arising
from the Limerick Unit No. 2 rate order. Under the terms of the settlement, the
Company is allowed to retain for shareholders any proceeds above the average
energy cost for sales of up to 399 megawatts (MW) of capacity and/or associated
energy, since the PUC had ruled that the Company had 399 MW of near-term excess
capacity in the Limerick Unit No. 2 rate order. Under the settlement, the
Company began on April 1, 1994 to share in the benefits which result from the
operation of both Limerick Unit No. 1 and Unit No. 2 through the retention of
16.5% of the energy savings. Through 1994, the Company's potential benefit from
the sale of up to 399 MW of capacity and/or associated energy and the retained
Limerick energy savings was limited to $106 million per year, with any excess
accruing to customers. Beginning in 1995, in addition to retaining the first
$106 million, the Company will share in any excess above $106 million with the
Company's share of the excess being 10% in 1995, 20% in 1996 and 30% in 1997 and
thereafter. During 1994, 1993 and 1992, the Company recorded as revenue net of
fuel costs $68, $38 and $34 million, respectively, as a result of the sale of
the 399 MW of capacity and/or associated energy and the Company's share of
Limerick Unit No. 1 and Unit No. 2 energy savings.
Single-Issue Electric Base Rate Increase
Under a Joint Petition dated October 3, 1994, the Company has been permitted to
increase electric base rates by $25 million per year, effective January 1, 1995,
to recover the increased costs associated with the implementation of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
See notes 4 and 6. The Joint Petition also provides that the Company will not
file for an increase in retail electric service rates before April 1, 1999,
except under specified circumstances for items such as energy cost adjustments,
changes in state taxes, changes in federal taxes, demand side management
surcharges, and increases in nuclear plant decommissioning expense or funding
requirements and spent nuclear fuel disposal expenses. The retail electric SFAS
No. 106 operating expense, including the annual amortization of the transition
obligation (over 18 years) deferred in 1993 and 1994, will be included in the
new rates. Subsequent to January 1, 1995, and prior to the Company's next base
rate case, no portion of retail electric SFAS No. 106 operating expense in
excess of the amount allowed to be recovered under the Joint Petition will be
deferred for future rate recovery. Also, beginning January 1, 1995, the Company
will be required to deposit in trust accounts funds equivalent to all of its
retail electric SFAS No. 106 costs. These costs include amounts charged to
operating expense and capitalized on and after January 1, 1995.
In accordance with the Joint Petition, any of the parties to the Joint
Petition may elect to void the settlement in the event current rate recovery of
SFAS No. 106 expense is ultimately disallowed through the Office of Consumer
Advocate's appeal to the Supreme Court of Pennsylvania of cases involving other
Pennsylvania utilities. In such event, the Company would refund to customers,
with interest, any increased base rate amounts collected.
Gas Accounting Settlement
On December 15, 1994, the PUC approved the Company's petition for an accounting
order associated with gas utility operations permitting recognition of $2.8
million of SFAS No. 106 costs annually and recognition of $1.5 million of
environmental costs annually for the remediation of sites of former manufactured
gas plant facilities using a cost of removal methodology, in exchange for a
reduction in depreciation rates to reflect the results of a current life study.
The Company will deposit in trust accounts funds equivalent to its retail gas
SFAS No. 106 costs beginning January 1, 1995. This settlement will not result in
any increase in rates to customers. See notes 3 and 6.
Limerick Unit No. 2 Declaratory Order
Pursuant to a Declaratory Order of the PUC, the Company deferred the operating
and maintenance expenses, depreciation and accrued carrying charges on its
capital investment in Limerick Unit No. 2 and 50% of Limerick common facilities
during the period from January 8, 1990, the commercial operation date of
Limerick Unit No. 2, until April 20, 1990, the effective date of the Limerick
Unit No. 2 rate order. At December 31, 1994 and 1993, such costs included in
Deferred Limerick Costs totaled $91 million. Recovery of such costs deferred
pursuant to the Declaratory Order will be addressed by the PUC in a subsequent
electric base rate case, although such recovery is not assured. Any amounts not
recovered would be charged against income.
<PAGE>
26
2. Rate Matters (CONTINUED)
Energy Cost Adjustment
The Company is subject to a PUC-established electric ECA which, in addition to
reconciling fuel costs and revenues, incorporates a nuclear performance standard
which allows for financial bonuses or penalties depending on whether the
Company's system nuclear capacity factor exceeds or falls below a specified
range. The bonuses or penalties are based upon average system replacement energy
costs. If the capacity factor is within the range of 60-70%, there is no bonus
or penalty. If the capacity factor exceeds the specified range, progressive
incremental bonuses are earned and, if the capacity factor falls below the
specified range, progressive incremental penalties are incurred.
For the years ended December 31, 1994, 1993 and 1992, the Company's system
nuclear capacity factors were 82%, 78% and 71%, respectively. This entitled the
Company to bonuses reflected in 1994, 1993 and 1992 income of $14, $10 and $1
million, respectively.
3. Commitments and Contingencies
Construction Expenditures
Construction expenditures are estimated to be $495 million for 1995 and $1.4
billion for 1996-1998. For 1995-1998, the Company expects that all of its
capital needs will be provided through internally generated funds. Construction
expenditure estimates are reviewed and revised periodically to reflect changes
in economic conditions, revised load forecasts and other appropriate factors.
Certain facilities under construction and to be constructed may require permits
and licenses which the Company has no assurance will be granted.
The Company's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Nuclear Insurance
The Price-Anderson Act, as amended (Price-Anderson Act), sets the limit of
liability of approximately $8.9 billion for claims that could arise from an
incident involving any licensed nuclear facility in the nation. The limit is
subject to increase to reflect the effects of inflation and changes in the
number of licensed reactors. All utilities with nuclear generating units,
including the Company, have obtained coverage for these potential claims through
a combination of private insurances of $200 million and mandatory participation
in a financial protection pool. Under the Price-Anderson Act, all nuclear
reactor licensees can be assessed up to $76 million per reactor per incident,
payable at $10 million per reactor per incident per year. This assessment is
subject to inflation, state premium taxes and an additional surcharge of 5% if
the total amount of claims and legal costs exceeds the basic assessment.
If the damages from an incident at a licensed nuclear facility exceed $8.9
billion, the President of the United States is to submit to Congress a plan for
providing additional compensation to the injured parties. Congress could impose
further revenue-raising measures on the nuclear industry to pay claims. The
Price-Anderson Act and the extensive regulation of nuclear safety by the Nuclear
Regulatory Commission (NRC) do not preempt claims under state law for personal,
property or punitive damages related to radiation hazards.
Although the NRC requires the maintenance of property insurance on nuclear
power plants in the amount of $1.06 billion or the amount available from private
sources, whichever is less, the Company maintains coverage in the amount of its
$2.75 billion proportionate share for each station. The Company's insurance
policies provide coverage for decontamination liability expense, premature
decommissioning and loss or damage to its nuclear facilities. These policies
require that, following an accident, insurance proceeds first be applied to
assure that the facility is in a safe and stable condition and can be maintained
in such condition. Within 30 days of stabilizing the reactor, the licensee must
submit a report to the NRC which provides a clean-up plan, including the
identification of all clean-up operations necessary to decontaminate the reactor
to either permit the resumption of operations or decommissioning of the
facility. Under the Company's insurance policies, insurance proceeds not already
expended to place the reactor in a stable condition must be used to
decontaminate the facility. If the decision is made to decommission the
facility, a portion of the insurance proceeds will be allocated to a fund which
the Company is required by the NRC to maintain to provide for decommissioning
the facility. These proceeds would be paid to the fund to make up any difference
between the amount of money in the fund at the time of the early decommissioning
and the amount that would be in the fund if contributions had been made over the
normal life of the facility. The Company is unable to predict what effect these
requirements may have on the amount and the availability of insurance proceeds
for the benefit of the Company's bondholders under the Company's mortgage. Under
the terms of the various property insurance agreements, the Company could be
assessed up to $44 million for losses incurred at any plant insured by the
insurance companies. The Company is self-insured to the extent that any losses
may exceed the amount of insurance maintained. Any such losses, if not recovered
through the ratemaking process, could have a material adverse effect on the
Company's financial condition or results of operations.
The Company is a member of an industry mutual insurance company which
provides replacement power cost insurance in the event of a major accidental
outage at a nuclear station. The premium for this coverage is subject to
assessment for adverse loss experience. The Company's maximum share of any
assessment is $14 million per year.
<PAGE>
27
3. Commitments and Contingencies (CONTINUED)
Nuclear Decommissioning and Spent Fuel Storage
In conjunction with the PUC's April 19, 1990 electric base rate order, the PUC
recognized a revised decommissioning cost estimate based upon total cost. The
Company's share of this revised cost is $643 million expressed in 1990 dollars.
Under current rates, the Company collects approximately $20 million annually
from customers for decommissioning the Company's nuclear units. The Company had
recovered $174 million as of December 31, 1994, from customers which has been
deposited in trust accounts for funding future decommissioning costs. The most
recent estimate of the Company's share of the cost to decommission its nuclear
units is approximately $900 million in 1994 dollars. Any increase in the 1990
decommissioning cost estimate being recovered in base rates is to be recoverable
in the Company's next base rate case. As a result, the Company expects to
receive recovery of a higher level of decommissioning expense in its next base
rate proceeding.
The staff of the Securities and Exchange Commission has questioned the
electric utility industry accounting practices regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations in financial statements. The Financial Accounting Standards Board has
agreed to review the accounting for removal costs including decommissioning. If
current electric utility industry accounting practices for decommissioning are
changed, annual provisions for decommissioning could increase, the estimated
cost for decommissioning could be recorded as a liability rather than as
accumulated depreciation, and trust fund income from external decommissioning
trusts could be reported as investment income rather than as a reduction to
decommissioning expense. The Company does not expect this review to have a
material effect on the Company's financial condition or results of operations.
Effective January 1, 1994, the Company began recognizing in the financial
statements unrealized gains using the average cost method as part of the value
of the decommissioning trust accounts and as a deferred liability (see note 4).
Under the Nuclear Waste Policy Act of 1982 (NWPA), the U.S. Department of
Energy (DOE) is required to take possession of all spent nuclear fuel generated
by the Company's nuclear units for long-term storage by no later than 1998.
Under the NWPA, the DOE is authorized to assess utilities for the cost of
nuclear fuel disposal. The current cost of such disposal is one mill ($.001) per
kilowatthour of net nuclear generation. The fee may be adjusted prospectively in
order to ensure full cost recovery.
The DOE has stated that it is under no legal obligation to begin accepting
spent fuel absent an operational repository or other facility constructed under
the NWPA. The DOE acknowledges, however, that it may have created the
expectation of such a commitment on the part of utilities by issuing certain
regulations and projected waste acceptance schedules. The DOE has stated that it
will not be able to open a permanent, high-level nuclear waste storage facility
until 2010, at the earliest. The DOE stated that the delay was a result of its
seeking new data about the suitability of the proposed repository site at Yucca
Mountain, Nevada, opposition to this location for the repository and the DOE's
revision of its civilian nuclear waste program. The DOE stated that it would
seek legislation from Congress for the construction of a temporary storage
facility which would accept spent nuclear fuel from utilities in 1998 or soon
thereafter. Although progress is being made at Yucca Mountain and several
communities have expressed interest in providing a temporary storage site, the
Company cannot predict when the temporary storage facilities or permanent
repository will become available. The DOE is exploring options to address delays
in the currently projected waste acceptance schedules. The options under
consideration by the DOE include offsetting a portion of the financial burden
associated with the costs of continued on-site storage of spent fuel after 1998
and the issuance by the DOE to utilities of multi-purpose canisters for on-site
storage.
Peach Bottom and Limerick have on-site storage facilities with the capacity
to store spent fuel discharged from the units through the late 1990's and, by
further modifying spent fuel storage facilities, capacity could be provided
until approximately 2010. Salem has spent fuel storage capacity through 1998 for
Unit No. 1 and 2002 for Unit No. 2. Public Service Electric and Gas (PSE&G) is
implementing a plan to extend the fuel storage capacity of Salem Unit No. 1 to
2008 and Unit No. 2 to 2012.
The National Energy Policy Act of 1992 (Energy Act) provides, among other
things, that utilities with nuclear reactors must pay for the decommissioning
and decontamination of the DOE nuclear fuel enrichment facilities. The total
costs are estimated to be $150 million per year for 15 years, of which the
Company's share is estimated at $5 million per year. The Energy Act provides
that these costs are to be recoverable in the same manner as other fuel costs.
The Company has recorded the liability and a related regulatory asset, which at
December 31, 1994 and 1993 was $59 and $69 million, respectively.
The Company is currently recovering in rates costs for nuclear
decommissioning and decontamination and spent fuel storage. The Company believes
that the ultimate costs of decommissioning and decontamination, spent fuel
disposal and any assessment under the Energy Act will continue to be recoverable
through rates, although such recovery is not assured.
Environmental Issues
Under federal and state environmental laws, the Company is generally liable for
the costs of remediating environmental contamination of property now or formerly
owned by the Company or of property contaminated by hazardous substances
generated by the Company. The Company owns or
<PAGE>
28
3. Commitments and Contingencies (CONTINUED)
leases a substantial number of real estate parcels, including parcels on which
its operations or the operations of others may have resulted in contamination by
substances which are considered hazardous under environmental laws. The Company
is currently involved in a number of proceedings relating to sites where
hazardous substances have been deposited and may be subject to additional
proceedings in the future. An evaluation of Company sites for potential
environmental clean-up liability is in progress, including approximately 20
sites where manufactured gas plant activities may have resulted in site
contamination. Past activities at several sites have resulted in actual site
contamination. The Company is presently engaged in performing detailed
evaluations of these sites to define the nature and extent of the contamination,
to determine the necessity of remediation and to identify possible remediation
alternatives. As of December 31, 1994 and 1993, the Company had accrued $24 and
$17 million, respectively, for environmental investigation and remediation costs
that currently can be reasonably estimated. On December 15, 1994, the PUC
approved the recognition of $1.5 million of environmental costs annually for the
remediation of sites of former manufactured gas plant facilities (see note 2).
The Company cannot currently predict whether it will incur other significant
liabilities for additional investigation and remediation costs at these or
additional sites identified by the Company, environmental agencies or others, or
whether all such costs will be recoverable through rates or from third parties.
Other Litigation
On April 11, 1991, 33 former employees of the Company filed an amended class
action suit against the Company in the United States District Court for the
Eastern District of Pennsylvania (Eastern District Court) on behalf of
approximately 141 persons who retired from the Company between January and April
1990. The lawsuit, filed under the Employee Retirement Income Security Act
(ERISA), alleges that the Company fraudulently and/or negligently misrepresented
or concealed facts concerning the Company's 1990 Early Retirement Plan and thus
induced the plaintiffs to retire or not to defer retirement immediately before
the initiation of the 1990 Early Retirement Plan, thereby depriving the
plaintiffs of substantial pension and salary benefits. In June 1991, the
plaintiffs filed amended complaints adding additional plaintiffs. The lawsuit
names the Company, the Company's Service Annuity Plan (SAP) and two Company
officers as defendants. The plaintiffs seek approximately $20 million in damages
representing, among other things, increased pension benefits and nine months
salary pursuant to the terms of the 1990 Early Retirement Plan, as well as
punitive damages. On March 24 and 25, 1994, the case was tried in Eastern
District Court on the issue of liability. On May 13, 1994, the Eastern District
Court issued a decision, finding the Company liable to all plaintiffs who made
inquiries about any early retirement plan after March 12, 1990 and retired prior
to April 1990. The Eastern District Court will try the case on the issue of
damages. The ultimate outcome of this matter is not expected to have a material
adverse effect on the Company's financial condition.
On May 2, 1991, 37 former employees of the Company filed an amended class
action suit against the Company, the SAP and three former Company officers in
the Eastern District Court, on behalf of 147 former employees who retired from
the Company between January and June 1987. The lawsuit was filed under ERISA and
concerns the August 1, 1987 amendment to the SAP. The plaintiffs claim that the
Company concealed or misrepresented the fact that the amendment to the SAP was
planned to increase retirement benefits and, as a consequence, they retired
prior to the amendment to the SAP and were deprived of significant retirement
benefits. The complaint does not specify any dollar amount of damages. On March
24 and 25, 1994, the case was tried in Eastern District Court on the issue of
liability. On May 13, 1994, the Eastern District Court issued a decision,
finding the Company liable to all plaintiffs who made inquiries about any
pension improvement after March 1, 1987 and retired prior to June 1987. The
Eastern District Court will try the case on the issue of damages. The ultimate
outcome of this matter is not expected to have a material adverse effect on the
Company's financial condition.
On May 25, 1993, the Company received a letter from attorneys on behalf of
a shareholder demanding that the Company's Board of Directors commence legal
action against certain Company officers and directors with respect to the
Company's credit and collections practices. The basis of the demand is the
findings and conclusions contained in the Credit and Collection section of the
May 1991 PUC Management Audit Report prepared by Ernst & Young. At its June 28,
1993 meeting, the Board of Directors appointed a special committee of directors
to consider whether such legal action is in the best interests of the Company
and its shareholders. On March 14, 1994, upon the recommendation of the Special
Committee, the Board of Directors approved a resolution refusing the shareholder
demand set forth in the May 25, 1993 demand letter, and authorizing and
directing officers of the Company to take all steps necessary to terminate the
derivative suit discussed below.
On July 26, 1993, attorneys on behalf of two shareholders filed a
shareholder derivative action in the Court of Common Pleas of Philadelphia
County against several of the Company's present and former officers alleging
mismanagement, waste of corporate assets and breach of fiduciary duty in
connection with the Company's credit and collections practices. A similar suit
by the same plaintiffs previously had been withdrawn while on appeal after
dismissal by the court for failure to first serve a demand on the Company's
Board of Directors. This action is also based on the findings and conclusions
contained in the Credit and Collections section of the May 1991 PUC Management
Audit Report prepared by
<PAGE>
29
3. Commitments and Contingencies (CONTINUED)
Ernst & Young. The plaintiffs seek, among other things, an unspecified amount of
damages and the awarding to the plaintiffs of the costs and disbursements of the
action, including attorneys' fees. On April 12, 1994, the Company filed a motion
for summary judgment seeking termination of the action pursuant to the Board of
Directors' resolution of March 14, 1994. Any monetary damages which may be
recovered, net of expenses, would be paid to the Company because the lawsuit is
brought derivatively by shareholders on behalf of the Company.
The Company is involved in various other litigation matters, the ultimate
outcomes of which, while uncertain, are not expected to have a material adverse
effect on the Company's financial condition or results of operations.
4. Changes in Accounting
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires current recognition of
the expected costs of the obligation to provide benefits to former or inactive
employees during the period after active employment but before retirement. For
1993 and prior, the Company recognized these costs on a pay-as-you-go basis. The
Company is currently recovering in base rates the pay-as-you-go costs. The
Company's transition obligation under SFAS No. 112 was $10.9 million, which
represents the previously unrecognized accumulated postemployment benefits
obligation. The Company's increased SFAS No. 112 costs for 1994 were $1.4
million. The Company expects to recover all increased expenses resulting from
the adoption of SFAS No. 112, and accordingly, has deferred all such expenses.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which requires the fair
value of investments in certain debt and equity securities be recorded in the
financial statements. The amounts which the Company recovers from customers for
the Company's share of the estimated costs for decommissioning its nuclear
generating stations are deposited in trust accounts and invested for funding of
future costs. As of December 31, 1994, the Company recognized $1 million of
unrealized gains using the average cost method, which are recorded as a deferred
liability (see note 3). The Company had no other such investments as of December
31, 1994.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires the
recognition of the expected costs of the benefits during the years employees
render service, but not later than the date eligible for retirement using the
prescribed accrual method. For 1992 and prior, the Company recognized these
costs on a pay-as-you-go basis. For 1994 and prior, the Company recovered in
base rates the pay-as-you-go costs. Adoption of SFAS No. 106 resulted in a
transition obligation of $505 million, which is being amortized on a
straight-line basis over 20 years. Adoption of SFAS No. 106 had no impact on the
Company's results of operations as the Company deferred these increased costs
pending rate treatment (see notes 2 and 6).
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes," which requires an asset and liability approach for financial
accounting and reporting for income taxes utilizing the cumulative method of
adoption. As a result, the Company recognized a charge of $3 million during
1993. The Company has also recorded an additional accumulated deferred income
tax liability along with a corresponding recoverable deferred income tax asset
of $2.1 and $2.3 billion at December 31, 1994 and 1993, respectively (see note
13).
5. Retirement Benefits
The Company and its subsidiaries have a non-contributory trusteed retirement
plan applicable to all regular employees. The benefits are based primarily upon
employees' years of service and average earnings prior to retirement. The
Company's funding policy is to contribute, at a minimum, amounts sufficient to
meet ERISA requirements. Approximately 85%, 71% and 78% of pension costs were
charged to operations in 1994, 1993 and 1992, respectively, and the remainder,
associated with construction labor, to the cost of new utility plant.
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Pension costs for 1994, 1993 and 1992 included the following components:
Service cost-- benefits earned during the period $33,403 $33,673 $30,191
Interest cost on projected benefit obligations 136,690 134,658 129,000
Actual return on plan assets 12,946 (226,240) (122,869)
Amortization of transition asset (4,538) (4,538) (4,539)
Amortization and deferral (161,955) 87,733 (5,741)
-------- ------ ------
Net pension cost $16,546 $25,286 $26,042
======= ======= =======
</TABLE>
<PAGE>
30
5. Retirement Benefits (continued)
The changes in net periodic pension costs in 1994, 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Change in number, characteristics and salary levels
of participants and net actuarial gain $(6,004) $(756) $(840)
Change in plan provisions (1,777) -- --
Change in actuarial assumptions (959) -- 4,542
---- ----- -----
Net change $(8,740) $(756) $3,702
======= ===== ======
</TABLE>
Plan assets consist principally of common stock, U.S. government
obligations and other fixed income instruments. In determining pension costs,
the assumed long-term rate of return on assets was 9.50% for 1994, 1993 and
1992.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.25% at December 31,
1994, 7% at December 31, 1993, and 7.75% at December 31, 1992. The average rate
of increase in future compensation levels ranged from 4.25% to 6.25% at December
31, 1994, from 4% to 6% at December 31, 1993, and from 4.5% to 6.5% at December
31, 1992.
Prior service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits under the
plan. The funded status of the plan at December 31, 1994 and 1993 is summarized
as follows:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS) 1994 1993
<S> <C> <C>
Actuarial present value of accumulated plan benefit obligations:
Vested benefit obligations $(1,505,552) $(1,482,868)
Accumulated benefit obligation (1,632,666) (1,600,768)
---------- ----------
Projected benefit obligation for services rendered to date (1,814,209) (1,972,332)
Plan assets at fair value 1,741,271 1,844,281
--------- ---------
Funded status (72,938) (128,051)
Unrecognized transition asset (49,327) (53,865)
Unrecognized prior service costs 73,338 95,728
Unrecognized net gain (230,105) (77,245)
-------- -------
Pension liability $(279,032) $(163,433)
========= =========
</TABLE>
6. Non-Pension Retirement Benefits
The Company provides certain health care and life insurance benefits for retired
employees. Company employees will become eligible for these benefits if they
retire from the Company with ten years of service. These benefits and similar
benefits for active employees are provided by an insurance company whose
premiums are based upon the benefits paid during the year. Prior to 1993, the
Company recognized the cost of providing these benefits by charging the annual
insurance premiums to expense.
The transition obligation resulting from the adoption of SFAS No. 106 was
$505 million at January 1, 1993, which represents the previously unrecognized
accumulated non-pension postretirement benefit obligation. The transition
obligation is being amortized on a straight-line basis over an allowed 20-year
period. As a result of the Voluntary Retirement Incentive Program (VRIP) and the
Voluntary Separation Incentive Program (VSIP), the Company accelerated
recognition of $180 million of non-pension postretirement benefits obligation
(see note 22). The annual non-pension postretirement benefits costs (including
amortization of the transition obligation) is $81 million. The Company's
comparable pay-as-you-go costs for these benefits, which were recovered in base
rates, were $32 million in 1994. Effective January 1, 1995, the Company will be
permitted by the PUC to recover SFAS No. 106 costs associated with the Company's
retail electric and gas operations (see note 2).
The transition obligation was determined by application of the terms of
medical, dental and life insurance plans, including the effects of established
maximums on covered costs, together with relevant actuarial assumptions and
health care cost trend rates, which are projected to range from 10% in 1995 to
5% in 2002. The effect of a 1% annual increase in these assumed cost trend rates
would increase the accumulated postretirement benefit obligation by $56 million
and the annual service and interest costs by $7 million.
Total costs for all plans amounted to $81, $83 and $17 million in 1994,
1993 and 1992, respectively, for 6,000 retirees during 1994, 1993 and 1992 and
for 3,539 active employees during 1994. The cost was higher in 1994 and 1993
than in 1992 primarily due to the adoption of SFAS No. 106.
<PAGE>
31
6. Non-Pension Retirement Benefits (Continued)
The net periodic benefits costs for 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993
<S> <C> <C>
Service cost - benefits earned during the period $17,056 $15,615
Interest cost on projected benefit obligations 41,196 41,708
Amortization of the transition obligation 22,659 25,251
Actual return on plan assets -- --
Amortization and deferral -- --
------ ------
Net periodic postretirement benefits costs $80,911 $82,574
======= =======
The funded status of the plan at December 31, 1994 and 1993
is summarized as follows:
(THOUSANDS OF DOLLARS) 1994 1993
Accumulated postretirement benefit obligation:
Retirees $566,128 $476,059
Fully eligible active plan participants 7,895 39,367
Other active plan participants 16,006 79,808
------ ------
Total 590,029 595,234
Plan assets at fair value (1,200) --
------ ------
Accumulated postretirement benefit obligation
in excess of plan assets 588,829 595,234
Unrecognized transition obligation (267,871) (479,778)
Unrecognized net gain 33,500 (63,675)
------ -------
Accrued postretirement benefits cost recognized
on the balance sheet $354,458 $51,781
======== =======
</TABLE>
Measurement of the accumulated postretirement benefits obligation was based on
an 8.5% and 7.25% assumed discount rate as of December 31, 1994 and 1993,
respectively.
7. Accounts Receivable
Accounts receivable at December 31, 1994 and 1993 included unbilled operating
revenues of $100 and $115 million, respectively. Accounts receivable at December
31, 1994 and 1993 were net of an allowance for uncollectible accounts of $17 and
$15 million, respectively.
The Company is party to an agreement with a financial institution whereby
it can sell on a daily basis and with limited recourse an undivided interest in
up to $325 million of designated accounts receivable until January 24, 1996. At
December 31, 1994 and 1993, the Company had sold a $325 million interest in
accounts receivable under this agreement. The Company retains the servicing
responsibility for these receivables.
By terms of this agreement, under certain circumstances, a portion of
deferred Limerick costs may be included in the pool of eligible receivables. At
December 31, 1994, $37 million of deferred Limerick costs were included in the
pool of eligible receivables.
8. Common Stock
At December 31, 1994 and 1993, common stock without par value consisted of
500,000,000 shares authorized and 221,608,984 and 221,517,099 shares
outstanding, respectively. At December 31, 1994, there were 4,800,000 shares
reserved for issuance under stock purchase plans.
The Company maintains a Long-Term Incentive Plan (LTIP) for certain
full-time salaried employees of the Company. The types of long-term incentive
awards which may be granted under the LTIP are non-qualified options to purchase
shares of the Company's common stock, dividend equivalents and shares of
restricted common stock. Pursuant to the LTIP, 2,651,397 shares of stock were
authorized for issuance upon exercise of options at December 31, 1994.
<PAGE>
32
8. Common Stock (continued)
The following table summarizes option activity during 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at January 1 1,961,882 2,445,833 1,656,244
Options granted 909,000 533,800 1,380,000
Options exercised (90,885) (981,551) (504,411)
Options cancelled (128,600) (36,200) (86,000)
-------- ------- -------
Balance at December 31 2,651,397 1,961,882 2,445,833
========= ========= =========
Exercisable at December 31 1,865,397 1,447,282 1,162,833
========= ========= =========
</TABLE>
Options were exercised at average option prices of $22.91 per share, $22.66 per
share and $24.73 per share in 1994, 1993 and 1992, respectively. The average
exercise prices of shares under option were $26.73 per share, $25.12 per share
and $23.18 per share at December 31, 1994, 1993 and 1992, respectively.
9. Preferred and Preference Stock
At December 31, 1994 and 1993, Series Preference Stock consisted of 100,000,000
shares authorized, of which no shares were outstanding. At December 31, 1994 and
1993, cumulative Preferred Stock, no par value, consisted of 15,000,000 shares
authorized.
<TABLE>
<CAPTION>
Current Shares Amount
Redemption Outstanding (Thousands of Dollars)
Price (a) 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Series (without mandatory redemption)
$7.85 -- -- 500,000 -- $50,000
$7.80 -- -- 750,000 -- 75,000
$7.75 -- -- 200,000 -- 20,000
$4.68 104.00 150,000 150,000 $15,000 15,000
$4.40 112.50 274,720 274,720 27,472 27,472
$4.30 102.00 150,000 150,000 15,000 15,000
$3.80 106.00 300,000 300,000 30,000 30,000
$7.96(b) (c) 1,400,000 1,400,000 140,000 140,000
$7.48 (d) 500,000 500,000 50,000 50,000
------- ------- ------ ------
2,774,720 4,224,720 277,472 422,472
--------- --------- ------- -------
Series (with mandatory redemption) (e)
$9.875 -- -- 390,000 -- 39,000
$7.325 -- -- 300,000 -- 30,000
$7.00 -- -- 248,000 -- 24,800
$6.12 (f) 927,000 927,000 92,700 92,700
------- ------- ------ ------
927,000 1,865,000 92,700 186,500
------- --------- ------ -------
Total Preferred Stock 3,701,720 6,089,720 $370,172 $608,972
========= ========= ======== ========
<FN>
(a) Redeemable, at the option of the Company, at the indicated dollar amounts
per share, plus accrued dividends.
(b) Ownership of this series of preferred stock is evidenced by depositary
receipts, each representing one-fourth of a share of preferred stock.
(c) None of the shares of this series are subject to redemption prior to
October 1, 1997.
(d) None of the shares of this series are subject to redemption prior to April
1, 2003.
(e) There are no annual sinking fund requirements in the period 1995-1998.
Annual sinking fund requirements in 1999 are $18,540,000.
(f) None of the shares of this series are subject to redemption prior to August
1, 1999.
</FN>
</TABLE>
<PAGE>
33
10. Monthly Income Preferred Securities of Subsidiary
On July 27, 1994, PECO Energy Capital, L.P., a Delaware limited partnership of
which a wholly owned subsidiary of the Com pany is the sole general partner,
issued 8.85 million of 9% Cumulative Monthly Income Preferred Securities, Series
A, representing limited partnership interests with a stated liquidation value of
$25, totaling $221 million, all of which were outstanding as of December 31,
1994.
11. Long-Term Debt
<TABLE>
<CAPTION>
AT DECEMBER 31,
(THOUSANDS OF DOLLARS) Series Due 1994 1993
<S> <C> <C> <C> <C>
First and Refunding Mortgage Bonds (a) 4 1/2% - 13.05% 1994 -- $170,000
6 1/8% 1997 $75,000 75,000
5 3/8% 1998 225,000 225,000
7 1/2% - 9 1/4% 1999 325,000 325,000
5 5/8% - 10% 2000-2004 1,310,069 1,310,069
6 3/8% - 10 1/4% 2005-2009 127,813 131,875
(b) 2010-2014 154,200 167,540
8 7/8% - 11% 2015-2019 145,281 227,841
6 5/8% - 10 1/2% 2020-2024 1,665,280 1,665,280
--------- ---------
Total First and Refunding Mortgage Bonds 4,027,643 4,297,605
Notes Payable-- Banks (c) 1994-1996 167,000 167,000
Revolving Credit and Term Loan Agreements (d) 1995-1998 525,000 425,000
Pollution Control Notes (e) 1997-2025 161,465 65,565
Debentures 10.05% 1994-2011 -- 62,000
Medium-Term Notes (f) 1994-2005 134,200 150,000
Sinking Fund Debentures --
PECO Energy Power Company, a Subsidiary 4 1/2% 1995 9,750 10,550
Unamortized Debt Discount and Premium, Net (38,214) (41,114)
--------- ---------
Total Long-Term Debt 4,986,844 5,136,606
Due Within One Year (g) 201,213 252,263
--------- ---------
Long-Term Debt included in Capitalization (h) $ 4,785,631 $4,884,343
============= ==========
<FN>
(a) Utility Plant is subject to the lien of the Company's mortgage.
(b) Floating rates, which were an average annual interest rate of 3.7% at
December 31, 1994.
(c) The Company has entered into interest rate swap agreements to fix the
effective interest rates on these notes. At December 31, 1994 and 1993, the
Company had two interest rate swap agreements outstanding with commercial
banks, for a total notional principal amount of $167 million, respectively.
These agreements are subject to performance by the commercial banks, which
are counterparties to the interest rate swaps. The Company does not
anticipate nonperformance by the counterparties. The annual interest rate
for these notes, giving effect to the interest rate swaps, was 10.51% at
December 31, 1994.
(d) On October 3, 1994, borrowings by the Company under its $525 million
revolving credit and term loan agreement with a group of banks converted to
a term loan. The term loan is due in six semi-annual installments
commencing April 3, 1995. Interest on outstanding borrowings is based on
specific formulas selected by the Company involving yields on several types
of debt instruments. The average annual interest rate for this revolving
credit agreement was 6.5% at December 31, 1994. The Company also has a $150
million revolving credit and term loan agreement with a group of banks. The
revolving credit agreement converts into a term loan in July 1996 and the
commitment terminates in 1998. There is an annual commitment fee of 0.2% on
the unused amount. At December 31, 1994 and 1993, no amounts were
outstanding under this agreement.
(e) Floating rates, which were an average annual interest rate of 4.9% at
December 31, 1994.
(f) Medium-term notes collateralized by mortgage bonds. The average annual
interest rate was 8.2% at December 31, 1994.
(g) Long-term debt maturities, including mandatory sinking fund requirements,
in the period 1996-1999 are as follows: 1996 - $393,463,000; 1997 -
$266,063,000; 1998 - $241,463,000; 1999 - $359,063,000.
(h) The annualized interest on long-term debt at December 31, 1994, was $362
million, of which $303 million was associated with mortgage bonds and $59
million was associated with other long-term debt.
</FN>
</TABLE>
<PAGE>
34
12. Short-Term Debt
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Average Borrowings $130,539 $113,193 $50,161
Average Interest Rates, computed on daily basis 4.03% 3.35% 3.72%
Maximum Borrowings Outstanding $418,600 $368,400 $255,500
Average Interest Rates at December 31 6.73% 3.45% 3.72%
</TABLE>
The Company has a $150 million commercial paper program and at December 31,
1994, there was no commercial paper outstanding. At December 31, 1994, the
Company had formal and informal lines of credit with banks aggregating $351
million against which $11 million of short-term debt was outstanding. The
Company has compensating balance arrangements for $158 million of these formal
and informal lines of credit. During 1994, the Company was required to maintain
a 5% average compensating balance for these credit lines. 13. Income Taxes
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Included in Operating Income:
Federal
Current $164,472 $117,535 $131,054
Deferred (2,691) 113,054 66,281
Investment Tax Credit, Net 28,006 43,344 (3,495)
State
Current 77,754 70,740 78,546
Deferred (33,508) 9,718 (7,903)
------- ----- ------
234,033 354,391 264,483
------- ------- -------
Included in Other Income and Deductions:
Federal
Current 1,989 (3,650) (45,295)
Deferred 9,722 15,926 20,237
State
Current 409 (1,615) (18,430)
Deferred 3,171 1,147 3,328
----- ----- -----
15,291 11,808 (40,160)
------ ------ -------
Total $249,324 $366,199 $224,323
======== ======== ========
</TABLE>
<PAGE>
35
13. Income Taxes (continued)
In accordance with SFAS No. 109, the Company has recorded an additional
accumulated net deferred income tax liability and pursuant to SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation," a corresponding
recoverable deferred income tax asset of $2.1 and $2.3 billion at December 31,
1994 and 1993, respectively, representing primarily the cumulative amount of
federal and state income taxes associated with the elimination of the net-of-tax
AFUDC accounting methodology.
The accumulated net deferred income tax liability reflects the tax effect
of anticipated revenues and reverses as the related temporary differences
reverse over the life of the related depreciable assets concurrent with the
recovery of their cost in rates. Also included in the accumulated deferred
income tax liability are other accumulated deferred income taxes, principally
associated with liberalized tax depreciation, established in accordance with the
ratemaking policies of the PUC based on flow-through accounting.
ITC and other general business credits reduced federal income taxes
currently payable by $43, $60 and $41 million in 1994, 1993 and 1992,
respectively. Under the Tax Reform Act of 1986, ITC was repealed effective
January 1, 1986 with the exception of transition property. The Company believes
that Limerick Unit No. 2 qualifies as transition property eligible for ITC.
All remaining general business credits were used by the Company during
1994.
The Internal Revenue Service (IRS) has completed its examinations of the
Company's federal income tax returns through 1986. The 1987 through 1990 federal
income tax returns are under examination. The IRS completed its field
examination in February 1994 and subsequently issued an assessment that the
Company has appealed. The Company expects resolution of the appeal by mid-1995.
For the years 1987 through 1990, the Company's current tax liability was
determined under the AMT method resulting in a cumulative tax credit of $176
million which can be utilized in future years when regular tax liability exceeds
AMT liability.
The tax effect of temporary differences which give rise to the Company's
net deferred tax liability as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Liability or (Asset)
(MILLIONS OF DOLLARS) 1994 1993
<S> <C> <C>
Nature of Temporary Difference:
Utility Plant
Accelerated Depreciation $1,377 $1,270
Deferred Investment Tax Credits 374 346
AMT Credits (176) (176)
Other Plant Related Temporary Differences 1,305 1,335
Taxes Recoverable Through Future Rates, Net 882 980
Deferred Debt Refinancing Costs 132 142
Other, Net (306) (155)
---- ----
Deferred Income Taxes per the Balance Sheet $3,588 $3,742
====== ======
</TABLE>
The net deferred tax liability shown above as of December 31, 1994 and 1993
is comprised of $4.127 and $4.182 billion of deferred tax liabilities, partly
offset by $539 and $440 million of deferred tax assets, respectively.
The 1994 amendment to Pennsylvania tax law changed the corporate income tax
rate from 12.25% to 11.99% for 1994, 10.99% for 1995, 10.75% for 1996, and 9.99%
for 1997 and thereafter. This change resulted in a $2 million decrease in Income
Taxes in the Consolidated Statement of Income for the year ended December 31,
1994. This change also resulted in a $174 million decrease in the Deferred
Income Taxes liability on the December 31, 1994 Consolidated Balance Sheet. The
decrease in the Deferred Income Taxes liability is returned to customers through
the State Tax Adjustment Clause in the year realized.
The Omnibus Budget Reconciliation Act of 1993 changed the federal income
tax rate for corporations to 35% from 34%, effective January 1, 1993. This
change resulted in an $8 million increase in Income Taxes in the Consolidated
Statement of Income for the year ended December 31, 1993. This change also
resulted in a $107 million increase in the Deferred Income Taxes liability in
1993, included in the December 31, 1994 and 1993 Consolidated Balance Sheets,
because the Company expects to receive recovery of all taxes when paid.
<PAGE>
36
Provisions for deferred income taxes consist of the tax effects of the following
timing differences:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Depreciation and Amortization $85,772 $78,324 $93,469
Deferred Energy Costs 13,777 19,013 (18,033)
Early Retirement and Separation Programs (82,008) -- 1,865
Incremental Nuclear Maintenance and Refueling Outage Costs (2,751) (827) (1,627)
Uncollectible Accounts (23,096) 625 (2,629)
Reacquired Debt (12,954) 28,959 39,123
Unrecovered Revenue (2,239) (806) (56,050)
Environmental Clean-up Cost (3,949) (2,479) --
Obsolete Inventory (6,192) (6,887) --
Limerick Plant Disallowances and Phase-In Plan 12,894 17,073 15,118
Other (2,560) 6,850 10,707
------ ----- ------
Total $(23,306) $139,845 $81,943
======== ======== =======
</TABLE>
The total income tax provisions differed from amounts computed by applying the
federal statutory tax rate to income and adjusted income before income taxes as
shown below:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Net Income $426,713 $590,648 $478,941
Total Income Tax Provisions 249,324 366,199 224,323
------- ------- -------
Income Before Income Taxes 676,037 956,847 703,264
Deduct: Allowance for Funds Used During Construction 22,169 23,774 20,663
------ ------ ------
Adjusted Income Before Income Taxes $653,868 $933,073 $682,601
======== ======== ========
Income Taxes on Above at Federal Statutory
Rate of 35% in 1994 and 1993 and 34% in 1992 $228,854 $326,576 $232,084
Increase (Decrease) due to:
Depreciation Timing Differences Not Normalized 12,767 9,721 10,427
Limerick Plant Disallowances and Phase-In Plan (530) 5,094 2,159
Unbilled Revenues Not Normalized -- -- (5,766)
State Income Taxes, Net of Federal Income Tax Benefits 31,086 51,994 36,657
Amortization of Investment Tax Credits (14,570) (13,470) (24,624)
Prior Period Income Taxes (14,524) (3,942) (20,655)
Other, Net 6,241 (9,774) (5,959)
----- ------ ------
Total Income Tax Provisions $249,324 $366,199 $224,323
======== ======== ========
Provisions for Income Taxes as a Percent of:
Income Before Income Taxes 36.9% 38.3% 31.9%
Adjusted Income Before Income Taxes 38.1% 39.2% 32.9%
</TABLE>
14. Taxes, Other Than Income - Operating
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Gross Receipts $160,704 $155,407 $158,314
Capital Stock 39,957 38,990 28,013
Real Estate 77,571 71,445 63,593
Payroll 31,556 31,490 29,410
Other 1,901 800 2,538
----- --- -----
Total $311,689 $298,132 $281,868
======== ======== ========
</TABLE>
<PAGE>
37
15. Leases
Leased property included in Utility Plant at December 31, was as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993
<S> <C> <C>
Nuclear Fuel $445,338 $448,203
Electric Plant 2,110 2,169
----- -----
Gross Leased Property 447,448 450,372
Accumulated Amortization (272,883) (255,670)
-------- --------
Net Leased Property $174,565 $194,702
======== ========
</TABLE>
The nuclear fuel obligation is amortized as the fuel is consumed. Amortization
of leased property totaled $62, $58 and $55 million for the years ended December
31, 1994, 1993 and 1992, respectively. Other operating expenses included
interest on capital lease obligations of $7, $8 and $7 million in 1994, 1993 and
1992, respectively. Minimum future lease payments as of December 31, 1994 were:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) YEAR ENDING DECEMBER 31, Capital Operating Total
Leases Leases
<S> <C> <C> <C>
1995 $69,777 $97,608 $167,385
1996 60,752 61,349 122,101
1997 50,213 60,208 110,421
1998 9,675 56,347 66,022
1999 92 53,900 53,992
Remaining Years 1,089 578,419 579,508
----- ------- -------
Total Minimum Future Lease Payments $191,598 $907,831 $1,099,429
======== ======== ==========
Imputed Interest (rates ranging from 6.5% to 17.0%) (17,033)
-------
Present Value of Net Minimum Future Lease Payments $174,565
========
</TABLE>
Rental expense under operating leases totaled $101, $99 and $94 million in 1994,
1993 and 1992, respectively.
16. Jointly Owned Electric Utility Plant
The Company's ownership interests in jointly owned electric utility plant at
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Transmission and
Production Plants Other Plant
Peach Bottom Salem Keystone Conemaugh
PECO Energy Public Service Electric Pennsylvania Pennsylvania Various
OPERATOR Company and Gas Company Electric Company Electric Company Companies
<S> <C> <C> <C> <C> <C>
Participating Interest 42.49% 42.59% 20.99% 20.72% 21% to 43%
(THOUSANDS OF DOLLARS)
Company's share of
Utility Plant $732,291 $1,184,271 $86,845 $147,479 $88,276
Accumulated Depreciation 274,452 374,354 47,840 48,719 28,060
Construction Work in Progress 22,283 47,280 21,484 27,658 1,101
</TABLE>
The Company's participating interests are financed with Company funds and, when
placed in service, all operations are accounted for as if such participating
interests were wholly owned facilities.
On April 2, 1992, the United States District Court for the District of New
Jersey approved a settlement of the lawsuits filed against the Company by the
other co-owners of Peach Bottom concerning the 1987 shutdown of Peach Bottom
ordered by the NRC. As part of the settlement, the Company paid $131 million to
the other co-owners on October 1, 1992 and the Company recognized a charge
against income ($76 million, net of taxes) in the first quarter of 1992.
In 1990, the Company received net proceeds of $28 million ($16 million, net
of taxes) in settlement of a shareholders' derivative suit in connection with
the 1987 Peach Bottom shutdown. Recognition of the $28 million had been deferred
pending the resolution of the co-owners' litigation. As a result of the
settlement of the co-owners' litigation, the $28 million was recognized as other
income in the first quarter of 1992 and reported as an offset against the amount
of the above-mentioned charge relating to the settlement of the co-owners'
litigation.
<PAGE>
38
17. Segment Information
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
ELECTRIC OPERATIONS
Operating Revenues $3,624,797 $3,605,425 $3,597,141
---------- ---------- ----------
Operating Expenses, excluding Depreciation 2,429,452 2,228,507 2,236,907
Depreciation 415,854 400,851 390,846
------- ------- -------
Operating Income $779,491 $976,067 $969,388
-------- -------- --------
Utility Plant Additions $457,728 $458,125 $461,407
======== ======== ========
GAS OPERATIONS
Operating Revenues $415,835 $382,704 $365,328
-------- -------- --------
Operating Expenses, excluding Depreciation 339,529 299,259 278,407
Depreciation 26,247 24,101 22,933
------ ------ ------
Operating Income $50,059 $59,344 $63,988
------- ------- -------
Utility Plant Additions $67,090 $72,481 $74,858
======= ======= =======
Identifiable Assets*
Electric $10,410,461 $10,395,488 $10,393,449
Gas 768,279 727,690 658,825
Nonallocable Assets 3,914,019 3,909,149 1,525,953
--------- --------- ---------
Total Assets $15,092,759 $15,032,327 $12,578,227
=========== =========== ===========
<FN>
* Includes Utility Plant less accumulated depreciation, inventories and
allocated common utility property.
</FN>
</TABLE>
18. Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The following disclosures supplement the accompanying
Statements of Cash Flows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993 1992
<S> <C> <C> <C>
Cash Paid During the Year:
Interest (net of amount capitalized) $437,096 $474,735 $515,696
Income Taxes (net of refunds) 205,316 182,751 224,352
Noncash Investing and Financing:
Capital Lease Obligations Incurred 41,710 42,484 40,757
</TABLE>
<PAGE>
39
19. Investments
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) DECEMBER 31, 1994 1993
<S> <C> <C>
Trust Accounts for Decommissioning Nuclear Plants $175,326 $149,932
Real Estate Developments and Other Ventures 42,298 46,741
Nonutility Property 19,609 21,262
Gas Exploration and Development Joint Ventures (722) 625
Other Deposits 76 76
-- --
Total $236,587 $218,636
======== ========
</TABLE>
20. Financial Instruments
Fair values of financial instruments, including liabilities, are estimated based
on quoted market prices for the same or similar issues. The carrying amounts and
fair values of the Company's financial instruments as of December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and Temporary Cash Investments $46,970 $46,970 $46,923 $46,923
Long-Term Debt (including amounts due within one year) 4,986,844 4,730,005 5,136,606 5,375,427
Trust Accounts for Decommissioning Nuclear Plants 175,326 175,326 149,932 160,141
</TABLE>
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and customer accounts receivable. The Company places its temporary cash
investments with high-credit, quality financial institutions. At times, such
investments may be in excess of the Federal Deposit Insurance Corporation limit.
Concentrations of credit risk with respect to customer accounts receivable are
limited due to the Company's large number of customers and their dispersion
across many industries.
21. Nuclear Fuel Agreement with Long Island Power Authority (LIPA)
In March 1993, the Company entered into an agreement with LIPA and other
parties, subsequently revised in September 1993, to receive $46 million as
compensation for accepting slightly irradiated nuclear fuel from Shoreham
Nuclear Power Station. The Company has received the payments in installments as
the shipments of nuclear fuel were accepted. As of June 30, 1994, the Company
had accepted all of the nuclear fuel shipments, and pursuant to the agreement,
earned a $4 million bonus as a result of receiving all shipments prior to the
September 5, 1994 target date.
The payments from LIPA, in excess of related costs, were recognized in
income. The Company recognized $26 and $20 million as other income in the
Consolidated Statements of Income for the year ended December 31, 1994 and 1993,
respectively. The Company incurred $4 million of costs related to accepting the
shipments pursuant to this agreement. The acquisition of the fuel will result in
estimated benefits to the Company's customers of $70 million over the next 15
years due to reduced fuel-purchase requirements.
<PAGE>
40
22. Voluntary Retirement and Separation Incentive Programs
In April 1994, the Company's Board of Directors approved a package of financial
incentives permitting eligible employees to participate in either VRIP or VSIP.
All regular, part-time and intermittent employees who would be 50 years of
age and have at least five years of credited service as of December 31, 1995
were eligible for VRIP. All regular and part-time employees of the Company,
regardless of age or seniority, were eligible for VSIP. Employees who
voluntarily separate from the Company under VSIP receive a lump-sum payment
based on years of service. Of the estimated 2,135 employees eligible for VRIP,
1,474 employees elected to accept early retirement. An additional 1,008
employees elected to separate under VSIP. The retirements and separations are
taking place in stages through December 31, 1995.
As a result of VRIP and VSIP, the Company incurred a one-time pre-tax
charge of $254 million ($145 million net of taxes) in the third quarter of 1994.
This charge consisted of the following: $190 million for the actuarially
determined pension and other postretirement benefits costs; $51.5 million in
cash payments for severance and accrued vacation/sick pay to be paid upon
separation; and $12.5 million for outplacement services costs and, for those
electing VSIP, the continuation of benefits for one year.
In addition, as a result of VRIP and VSIP, the Company accelerated
recognition of $180 million of its non-pension postretirement benefits
obligation. The Company recorded a corresponding regulatory asset as it expects
to receive recovery of all non-pension postretirement benefits cost through the
ratemaking process. This recognition of $180 million of non-pension
postretirement benefits obligation and the recordation of the corresponding
regulatory asset did not impact earnings.
23. Quarterly Data (Unaudited)
The data shown below include all adjustments which the Company considers
necessary for a fair presentation of such amounts:
<TABLE>
<CAPTION>
Operating Revenues Operating Income Net Income
(THOUSANDS OF DOLLARS) 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Quarter ended
March 31 $1,128,409 $1,071,492 $260,313 $281,734 $159,384 $162,356
June 30 951,541 901,703 202,784 223,196 116,050 107,691
September 30 1,041,162 1,073,134 128,477 290,937 22,195 181,683
December 31 919,520 941,800 237,976 239,544 129,084 138,918
</TABLE>
<TABLE>
<CAPTION>
Earnings Applicable Average Shares Earnings
to Common Stock Outstanding Per Average Share
(THOUSANDS OF DOLLARS) 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Quarter ended
March 31 $148,553 $149,305 221,517 220,609 $0.67 $0.68
June 30 105,264 94,540 221,531 220,856 0.48 0.43
September 30 12,577 169,727 221,570 221,318 0.06 0.77
December 31 123,021 128,018 221,596 221,493 0.55 0.58
</TABLE>
1994 third quarter results include a net charge of $254 million ($145 million,
net of taxes), or $0.66 per share, as a result of VRIP and VSIP (see note 22).
<PAGE>
41
Financial Statistics
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
FOR THE YEAR ENDED 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Summary of Earnings and
Financial Condition
Operating Revenues $4,040.6 $3,988.1 $3,962.5 $4,018.6 $3,786.7 $3,473.8
Operating Income 829.6 1,035.4 1,033.4 1,081.2 767.7 809.3
Income from Continuing Operations 426.7 590.6 478.9 534.7 105.8 590.5
Net Income 426.7 590.6 478.9 534.7 214.2 590.5
Earnings Applicable to Common
Stock 389.4 541.6 418.2 468.6 123.9 493.9
Earnings Per Average Common Share
From Continuing Operations (DOLLARS) 1.76 2.45 1.90 2.15 0.07 2.36
Earnings Per Average Common
Share (DOLLARS) 1.76 2.45 1.90 2.15 0.58 2.36
Dividends Per Common Share (DOLLARS) 1.545 1.43 1.325 1.225 1.45 2.20
Common Stock Equity (PER SHARE) 19.41 19.25 18.24 17.69 16.71 17.67
Average Shares of Common Stock
Outstanding (MILLIONS) 221.6 221.1 220.2 218.2 214.4 208.9
AT DECEMBER 31,
Net Utility Plant, at Original Cost $10,828.7 $10,763.0 $10,691.2 $10,598.4 $10,591.3 $10,720.8
Leased Property, Net 174.6 194.7 210.0 223.8 241.3 273.5
Total Current Assets 454.8 514.8 550.0 783.2 745.0 655.0
Total Deferred Debits and Other
Assets 3,634.7 3,559.8 1,127.0 918.1 938.6 972.8
------- ------- ------- ----- ----- -----
Total Assets $15,092.8 $15,032.3 $12,578.2 $12,523.5 $12,516.2 $12,622.1
========= ========= ========= ========= ========= =========
Common Shareholders' Equity $4,302.5 $4,263.4 $4,022.2 $3,892.3 $3,624.5 $3,744.8
Preferred and Preference Stock
Without Mandatory Redemption 277.5 422.5 422.5 422.5 422.5 622.4
With Mandatory Redemption 92.7 186.5 231.1 315.6 330.9 351.1
Minority Interest in Preferred
Securities of Subsidiary 221.3 -- -- -- -- --
Long-Term Debt 4,785.6 4,884.3 5,203.9 5,415.6 5,830.8 5,762.7
------- ------- ------- ------- ------- -------
Total Capitalization 9,679.6 9,756.7 9,879.7 10,046.0 10,208.7 10,481.0
------- ------- ------- -------- -------- --------
Total Current Liabilities 878.6 954.6 830.6 823.4 783.8 790.5
Total Deferred Credits and
Other Liabilities 4,534.6 4,321.0 1,867.9 1,654.1 1,523.7 1,350.6
------- ------- ------- ------- ------- -------
Total Capitalization and Liabilities $15,092.8 $15,032.3 $12,578.2 $12,523.5 $12,516.2 $12,622.1
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
42
Operating Statistics
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Electric Operations
OUTPUT (MILLIONS OF KILOWATTHOURS)
Fossil 11,239 10,352 8,082 7,376 7,913 10,470
Nuclear 28,195 27,026 24,428 25,735 23,715 12,890
Hydro 1,970 1,699 1,803 1,388 2,266 1,743
Pumped Storage Output 1,596 1,478 1,597 1,653 1,437 1,354
Pumped Storage Input (2,256) (2,192) (2,217) (2,355) (2,059) (1,937)
Purchase and Interchange 6,164 6,447 8,675 8,603 5,787 11,192
Internal Combustion 106 56 29 79 152 348
Other -- -- -- -- 180 1,063
------ ------ ------ ------ ------ ------
TOTAL ELECTRIC OUTPUT 47,014 44,866 42,397 42,479 39,391 37,123
====== ====== ====== ====== ====== ======
SALES (MILLIONS OF KILOWATTHOURS)
Residential 10,817 10,657 9,894 10,311 9,815 9,974
Small Commercial and Industrial 6,108 5,773 5,367 5,284 5,066 4,921
Large Commercial and Industrial 15,847 15,935 15,770 16,177 16,554 16,749
Other 791 771 962 1,029 1,010 1,031
--- --- --- ----- ----- -----
Service Territory 33,563 33,136 31,993 32,801 32,445 32,675
Interchange Sales 768 457 1,231 1,612 2,751 2,027
Sales to Other Utilities 10,039 8,670 6,699 5,445 1,865 --
------ ------ ------ ------ ------ ------
TOTAL ELECTRIC SALES 44,370 42,263 39,923 39,858 37,061 34,702
====== ====== ====== ====== ====== ======
NUMBER OF CUSTOMERS, DECEMBER 31,
Residential 1,350,210 1,341,873 1,333,926 1,324,795 1,320,126 1,309,717
Small Commercial and Industrial 143,605 142,363 141,253 140,901 140,305 138,244
Large Commercial and Industrial 3,603 3,742 3,972 4,162 4,344 4,449
Other 944 888 857 840 817 775
------ ------ ------ ------ ------ ------
TOTAL ELECTRIC CUSTOMERS 1,498,362 1,488,866 1,480,008 1,470,698 1,465,592 1,453,185
========= ========= ========= ========= ========= =========
OPERATING REVENUES
(MILLIONS OF DOLLARS)
Residential $1,369.6 $1,354.1 $1,304.5 $1,342.3 $1,229.8 $1,157.0
Small Commercial and Industrial 706.8 678.9 669.8 641.0 595.2 537.1
Large Commercial and Industrial 1,142.9 1,164.0 1,223.2 1,278.9 1,247.1 1,182.0
Other 136.0 161.2 168.0 170.4 166.9 143.9
------ ------ ------ ------ ------ ------
Service Territory 3,355.3 3,358.2 3,365.5 3,432.6 3,239.0 3,020.0
Interchange Sales 23.0 14.3 32.1 42.8 81.5 68.2
Sales to Other Utilities 246.5 232.9 199.5 187.2 81.1 --
------ ------ ------ ------ ------ ------
TOTAL ELECTRIC REVENUES $3,624.8 $3,605.4 $3,597.1 $3,662.6 $3,401.6 $3,088.2
======== ======== ======== ======== ======== ========
OPERATING EXPENSES
(MILLIONS OF DOLLARS)
Operating Expenses, excluding
Depreciation $2,429.4 $2,228.5 $2,236.9 $2,253.2 $2,325.2 $2,077.4
Depreciation 415.9 400.8 390.8 379.6 337.7 257.4
----- ----- ----- ----- ----- -----
TOTAL OPERATING EXPENSES $2,845.3 $2,629.3 $2,627.7 $2,632.8 $2,662.9 $2,334.8
-------- -------- -------- -------- -------- --------
ELECTRIC OPERATING INCOME $779.5 $976.1 $969.4 $1,029.8 $738.7 $753.4
====== ====== ====== ======== ====== ======
AVERAGE USE PER RESIDENTIAL
CUSTOMER (KILOWATTHOURS)
Without Electric Heating 6,736 6,727 6,259 6,707 6,376 6,488
With Electric Heating 17,527 17,096 16,298 16,201 16,038 17,250
Total 8,041 7,970 7,443 7,801 7,464 7,655
Electrical Peak Load, Demand
(THOUSANDS OF KILOWATTS) 7,227 7,100 6,617 7,096 6,755 6,467
Net Electric Generating Capacity--
Year-End Summer Rating
(THOUSANDS OF KILOWATTS) 8,956 8,877 8,836 8,766 8,766 7,759
Cost of Fuel per Million Btu $0.89 $0.90 $0.82 $0.92 $1.13 $1.37
Btu per Net Kilowatthour Generated 11,617 10,675 10,657 10,849 10,844 10,894
</TABLE>
<PAGE>
43
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Gas Operations
SALES (MILLIONS OF CUBIC FEET)
Residential 1,636 1,637 1,819 1,746 1,778 1,951
House Heating 31,974 30,687 29,750 26,423 25,303 28,301
Commercial and Industrial 21,520 22,943 21,497 20,492 23,228 30,038
Other 5,079 5,656 2,146 534 1,567 2,344
----- ----- ----- --- ----- -----
TOTAL GAS SALES 60,209 60,923 55,212 49,195 51,876 62,634
Gas Transported for Customers 29,801 22,946 22,060 21,414 24,413 18,033
------ ------ ------ ------ ------ ------
TOTAL GAS SALES & TRANSPORTED 90,010 83,869 77,272 70,609 76,289 80,667
====== ====== ====== ====== ====== ======
NUMBER OF CUSTOMERS, DECEMBER 31,
Residential 57,122 59,573 59,859 62,444 63,267 65,544
House Heating 287,481 277,500 269,577 260,473 254,564 246,273
Commercial and Industrial 32,292 31,573 30,956 30,204 29,456 28,369
------ ------ ------ ------ ------ ------
TOTAL GAS CUSTOMERS 376,895 368,646 360,392 353,121 347,287 340,186
======= ======= ======= ======= ======= =======
OPERATING REVENUES
(MILLIONS OF DOLLARS)
Residential $16.0 $15.0 $16.4 $17.0 $18.1 $18.0
House Heating 235.4 205.5 201.9 192.4 200.8 195.8
Commercial and Industrial 133.1 124.2 121.1 123.6 144.7 152.5
Other 14.0 15.2 2.8 2.2 5.6 7.3
---- ---- --- --- --- ---
Subtotal $398.5 $359.9 $342.2 $335.2 $369.2 $373.6
Other Revenues (including Transported
for Customers) 17.3 22.8 23.1 20.8 15.8 12.1
---- ---- ---- ---- ---- ----
TOTAL GAS REVENUES $415.8 $382.7 $365.3 $356.0 $385.0 $385.7
------ ------ ------ ------ ------ ------
OPERATING EXPENSES (MILLIONS OF DOLLARS)
Operating Expenses, excluding
Depreciation $339.5 $299.3 $278.4 $283.7 $336.2 $310.2
Depreciation 26.2 24.1 22.9 21.0 19.8 19.6
---- ---- ---- ---- ---- ----
TOTAL OPERATING EXPENSES $365.7 $323.4 $301.3 $304.7 $356.0 $329.8
------ ------ ------ ------ ------ ------
GAS OPERATING INCOME $50.1 $59.3 $64.0 $51.3 $29.0 $55.9
===== ===== ===== ===== ===== =====
</TABLE>
SECURITIES STATISTICS
Ratings on PECO Energy Company's Securities
<TABLE>
<CAPTION>
Mortgage Bonds Debentures Preferred Stock
Date Date Date
AGENCY Rating Established Rating Established Rating Established
<S> <C> <C> <C> <C> <C> <C>
Duff and Phelps, Inc. BBB+ 4/92 BBB 4/92 BBB- 8/91
Fitch Investors Service, Inc. A- 9/92 BBB+ 9/92 BBB+ 9/92
Moody's Investors Service Baal 4/92 Baa2 4/92 baa2 4/92
Standard & Poor's Corporation BBB+ 4/92 BBB 4/92 BBB 4/92
</TABLE>
NYSE-Composite Common Stock Prices, Earnings and Dividends By Quarter
(PER SHARE)
<TABLE>
<CAPTION>
1994 1993
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C>
High Price $25-7/8 $28-1/4 $29-3/8 $30 $32-7/8 $33-1/2 $31-1/8 $30-3/8
Low Price $23-5/8 $23-5/8 $25-3/8 $25-3/8 $27-3/8 $30-3/8 $27-3/4 $25-1/2
Close $24-1/2 $25-3/8 $26-1/4 $27-3/4 $30-1/4 $32-3/4 $30-5/8 $30
Earnings 55(cent) 6(cent) 48(cent) 67(cent) 58(cent) 77(cent) 43(cent) 68(cent)
Dividends 40.5(cent) 38(cent) 38(cent) 38(cent) 38(cent) 35(cent) 35(cent) 35(cent)
</TABLE>
<PAGE>
44
Board of Directors and Officers
Board of Directors
Susan W. Catherwood (51)
Chairman, Trustee Board, The University of Pennsylvania Health System
M. Walter D'Alessio (61)
President and Chief Executive Officer, Legg Mason Real Estate Services
(Commercial mortgage banking and pension fund advisors)
Richard G. Gilmore * (67)
Former Senior Vice President, Finance and Chief Financial Officer of the Company
Richard H. Glanton, Esquire (48)
Partner of the law firm Reed Smith Shaw & McClay
James A. Hagen * (62)
Chairman, President and Chief Executive Officer, Conrail, Inc.
Nelson G. Harris * (68)
Chairman of the Executive Committee, Tasty Baking Company
Joseph C. Ladd (68)
Former Chairman, The Fidelity Mutual Life Insurance Company
Edithe J. Levit, M.D. (68)
President Emeritus and Life Member of the Board, National Board of Medical
Examiners
Admiral Kinnaird R. McKee (65)
Director Emeritus, U.S. Navy Nuclear Propulsion
Joseph J. McLaughlin * (66)
Former President and Chief Executive Officer, Beneficial Mutual Savings Bank
Corbin A. McNeill, Jr. (55)
President and Chief Operating Officer of the Company
John M. Palms, PhD. (59)
President, University of South Carolina
Joseph F. Paquette, Jr. * (60)
Chairman and Chief Executive Officer of the Company
Ronald Rubin * (63)
Chief Executive Officer, The Rubin Organization, Inc. (Real estate development
and management)
Robert Subin (56)
Senior Vice President, Campbell Soup Company and President, Campbell Soup
Company, Bakery and Confectionery Division
Director Changes:
Robert D. Harrison's term expired on March 31, 1994.
Robert Subin was elected a member of the Board, effective September 26, 1994.
* Member of the Executive Committee
Officers
Joseph F. Paquette, Jr. (60)
Chairman and Chief Executive Officer
Corbin A. McNeill, Jr. (55)
President and Chief Operating Officer
William L. Bardeen (56)
Senior Vice President and Group Executive, Consumer Energy Services Group (1)
James W. Durham (57)
Senior Vice President and General Counsel
William J. Kaschub (52)
Senior Vice President, Human Resources
Gwendolyn S. King (54)
Senior Vice President, Corporate and Public Affairs
Kenneth G. Lawrence (47)
Senior Vice President, Finance and Chief Financial Officer (1)
John M. Madara, Jr. (51)
Senior Vice President and Group Executive, Power Generation Group (1)
Robert J. Patrylo (48)
Senior Vice President and Group Executive, Gas Services Group (4)
Dickinson M. Smith (61)
Senior Vice President, Nuclear Generation Group and Chief Nuclear Officer (1)
Alvin J. Weigand (56)
Senior Vice President and Group Executive, Bulk Power Enterprises (1)
JoAnn M. Bauer (48)
Vice President, Customer Services (3)
Gregory A. Cucchi (45)
Vice President, Planning and Performance (1)
David R. Helwig (43)
Vice President, Limerick Generating Station
Thomas P. Hill, Jr. (46)
Vice President and Controller
Katherine C. Holland (42)
Vice President, Information Systems and Chief Information Officer (2)
Garret C. Miller (50)
Vice President, Philadelphia Region
J. Barry Mitchell (47)
Vice President, Finance and Treasurer (7)
William E. Powell, Jr. (58)
Vice President, Support Services (8)
Gerald R. Rainey (45)
Vice President, Peach Bottom Atomic Power Station
William H. Smith, III (46)
Vice President, Station Support (1)
Thomas C. Stapleford (57)
Vice President, Bucks/Mont Region
Damian A. Thomas (48)
Vice President, Marketing and Sales(8)
William J. Williams (53)
Vice President, Transmission and Distribution Services
Nancy J. Zausner (41)
Vice President, Power Transactions (5)
Katherine K. Dodd (44)
Corporate Secretary (6)
Edward J. Cullen, Jr. (47)
Assistant Corporate Secretary (8)
Todd D. Cutler (34)
Assistant Corporate Secretary
James F. Hohenstein (51)
Assistant Treasurer
(1) Effective March 1, 1994
(2) Effective March 21, 1994
(3) Effective April 13, 1994
(4) Effective August 1, 1994
(5) Effective October 11, 1994
(6) Effective November 1, 1994
(7) Effective December 1, 1994
(8) Effective January 30, 1995
Exhibit 21
PECO ENERGY COMPANY SUBSIDIARIES
AND STATE OF INCORPORATION
PECO Energy Power Company (Pennsylvania)
Susquehanna Power Company (Maryland)
Susquehanna Electric Company (Maryland)
Conowingo Power Company (Maryland)
Adwin Equipment Company (Pennsylvania)
Adwin Investment Company (Pennsylvania)
Adwin Realty Company (Pennsylvania)
Eastern Pennsylvania Development Company (Pennsylvania)
Eastern Pennsylvania Exploration Company (Pennsylvania)
Energy Performance Services, Inc. (Pennsylvania)
PECO Energy Capital Corp. (Delaware)
PECO Gas Supply Company (Pennsylvania)
The Proprietors of the Susquehanna Canal (Inactive) (Maryland)
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
PECO Energy Company on Form S-3 (File Nos. 33-53785, 33-53785-1, 33-54935,
33-49887, 33-43523, and 33-59152) and on Form S-8 (File No. 33-30317) of our
reports dated January 30, 1995, on our audits of the consolidated financial
statements and financial schedule of PECO Energy Company as of December 31, 1994
and 1993 and for each of the three years in the period ended December 31, 1994,
which reports are incorporated by reference and included, respectively, in this
Annual Report of Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 23, 1995
Exhibit 24
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Susan W. Catherwood of Bryn Mawr,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company to be filed with the Securities and Exchange Commission, and generally
to do and perform all things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present.
DATE: March 24, 1995 /S/ SUSAN W. CATHERWOOD (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, M. Walter D'Alessio of Philadelphia,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: March 24, 1995 /S/ M. WALTER D'ALESSIO (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Richard G. Gilmore of Sarasota, FL,
do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: march 24, 1995 /S/ RICHARD G. GILMORE (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Richard H. Glanton of Philadelphia,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: March 24, 1995 /S/ RICHARD H. GLANTON (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, James A. Hagen of Villanova, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1994 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: March 24, 1995 /S/ JAMES A. HAGEN (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Nelson G. Harris of Lafayette Hill,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: MArch 24, 1995 /S/ NELSON G. HARRIS (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Robert Subin of Blue Bell, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1994 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: MArch 24, 1995 /S/ ROBERT SUBIN (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Joseph C. Ladd of Rosemont, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1994 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: March 24, 1995 /S/ JOSEPH C. LADD (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Edithe J. Levit of Philadelphia, PA,
do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: March 24, 1995 /S/ EDITHE J. LEVIT (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Kinnaird R. McKee of Oxford, MD, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1994 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: March 24, 1995 /S/ KINNAIRD R. MCKEE (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Joseph J. McLaughlin of Rosemont,
PA, do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: March 24, 1995 /S/ JOSEPH J. MCLAUGHLIN (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Dr. John M. Palms of Columbia, SC,
do hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of
them, attorney for me and in my name and on my behalf to sign the annual
Securities and Exchange Commission report on Form 10-K for 1994 of PECO Energy
Company (formerly Philadelphia Electric Company), to be filed with the
Securities and Exchange Commission, and generally to do and perform all things
necessary to be done in the premises as fully and effectually in all respects as
I could do if personally present.
DATE: March 24, 1995 /S/ JOHN M. PALMS (L.S.)
<PAGE>
P O W E R O F A T T O R N E Y
KNOW ALL MEN BY THESE PRESENTS That I, Ronald Rubin of Narberth, PA, do
hereby appoint J. F. PAQUETTE, JR., and C. A. MC NEILL, JR., or either of them,
attorney for me and in my name and on my behalf to sign the annual Securities
and Exchange Commission report on Form 10-K for 1994 of PECO Energy Company
(formerly Philadelphia Electric Company), to be filed with the Securities and
Exchange Commission, and generally to do and perform all things necessary to be
done in the premises as fully and effectually in all respects as I could do if
personally present.
DATE: March 24, 1995 /S/ RONALD RUBIN (L.S.)
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000078100
<NAME> PECO ENERGY COMPANY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $11,003,265,000
<OTHER-PROPERTY-AND-INVEST> 236,587,000
<TOTAL-CURRENT-ASSETS> 454,844,000
<TOTAL-DEFERRED-CHARGES> 3,134,755,000
<OTHER-ASSETS> 263,308,000
<TOTAL-ASSETS> 15,092,759,000
<COMMON> 3,490,728,000
<CAPITAL-SURPLUS-PAID-IN> 1,271,000
<RETAINED-EARNINGS> 810,507,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,302,506,000
277,472,000
92,700,000
<LONG-TERM-DEBT-NET> 4,785,631,000
<SHORT-TERM-NOTES> 11,499,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 201,213,000
0
<CAPITAL-LEASE-OBLIGATIONS> 114,089,000
<LEASES-CURRENT> 60,476,000
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,247,173,000
<TOT-CAPITALIZATION-AND-LIAB> 15,092,759,000
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37,298,000
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</TABLE>
